Studies in Economics Ethics and Philosophy

Series Editor Editorial Board

Peter Koslowski John Boatright
George Brenkert
Alexander Brink
James M. Buchanan
Christopher Cowton
Richard T. De George
Thomas Donaldson
Jon Elster
Amitai Etzioni
Michaela Haase
Bernard Hodgson
Yuichi Shionoya
Phillipe Van Parijs
Josef Wieland
Wilfried Ver Eecke

Ethical Dimensions
of the Economy
Making Use of Hegel and the Concepts
of Public and Merit Goods

123
Prof. Wilfried Ver Eecke
Georgetown University Washington D.C.
214 and 37th New North and O Streets
Washington, DC 20057
USA
vereeckw@georgetown.edu

ISBN 978-3-540-77110-4 e-ISBN 978-3-540-77111-1

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For my grandchildren Maya, Josie, Michael, Edmund, Charles and Ellen,
who are the way of the future.
Acknowledgments

The following chapters are based on previously published articles that

have been reworked more or less extensively for this volume.

Ch. 1 appeared in (1981) as: The Economy and Values. In Absolute Values
and the Search For the Peace of Mankind. Proceedings of the Ninth
International Conference of the Unity of the Sciences. Conference:
Miami Beach 1980 (pp. 123–40). New York: The International Cul-
tural Foundation Press. I thank the International Cultural Foundation
for their generous permission to the authors to let them make use of
their chapters.

Ch. 2 appeared in (1979) as: Relation Between Economics and Politics in

Hegel. In D. Verene (Ed.), Hegel's Social and Political Thought
(pp. 91–101). New York: Humanities Press. I gratefully acknowl-
edge the original publication of this chapter in a book published by
Humanities Press and Harvester Press Ltd in England.

Ch. 3 appeared in (1983) as Hegel on Economics and Freedom. Archiv Für

Rechts-und Sozialphilosophie, 69(2), 189–215. I thank the journal
Archiv Für Rechts-und Sozialphilosophie for their policy to let au-
thors use their articles.

Ch. 4 appeared in (1983) as: Ethics in Economics: From Classical Eco-

nomics to Neo-liberalism. Philosophy and Social Criticism, 9, 145–
68. I wish to thank the journal Philosophy and Social Criticism and
Sage Publications for permission to use the article.

Ch. 5 appeared in (1998) as: The concept of a 'merit good.' The ethical
dimension in economic theory and the history of economic thought
or the transformation of economics into socio-economics. Journal of
Socio-Economics, 27 (1), 133–53. I wish to thank the Journal of
Socio-Economics and Elsevier for permission to use the article.

Ch. 6 appeared in (1999) as: Public Goods: An Ideal Concept. Journal of

Socio-Economics, 28(3), 139–156. I wish to thank the Journal of
Socio-Economics and Elsevier for permission to use the article.
VIII Acknowledgments

Ch. 7 appeared in (1988) as: American Capitalism: A Philosophical Re-

flection. Philosophy and Theology, 3 (2), 105–32. I wish to thank
the journal Philosophy and Theology for the permission to use the
above article.

Ch. 8 appeared in (1996) as: A refundable tax credit for children: Self-
interest-based and morally based arguments. Journal of Socio-
Economics, 25 (3), 383–394. I wish to thank the Journal of Socio-
Economics and Elsevier for permission to use the above article.

Ch. 9 appeared in (1996) as: The limits of both socialist and capitalist
economies. In Institute for Reformational Studies. Study Pam-
phlets. (Vol. 348, pp. 1–12). Potchefstroom: Potchefstroom Univer-
siteit. I wish to thank the Institute for Reformational Studies and
its current successor the Centre for Faith and Scholarship for the
permission to use the above pamphlet.

For some of the work I received financial support from the A. von Hum-
boldt Foundation in Germany and the following entities at Georgetown
University: the Center for Advanced Study of ethics, the Center for Busi-
ness-Government Relations, the office of the Dean of Faculty, the office of
the Academic Vice-President (GUROP), the Graduate School and the Phi-
losophy Department .

Along the way I received editorial assistance from Thane Naberhaus, Carol
Taylor, Christiana Coletti, Reva Harris, David O’Mara, Alexander Skall,
William Remley, and Charles Mackel; and bibliographic assistance of
Bridget Johnson and Christiana Coletti. For the final revision I received
help from Megan Hughes. I benefited from two discussion groups, one
organized by Bruce Douglass and one by Michael Novak. I am grateful
for comments on the final draft by Albino Barrero, Richard Hattwick and
Guido Deboeck and for suggestions for improvements by Mark Nowacki,
Luc De Wulf and Henri Ghesquiere. Joint teaching with my colleague of
the economics department, Henry Briefs, proved to be encouraging and in-
structive. Finally, I benefited from comments from many colleagues who
read my work or attended papers I presented.
Table of Contents

Acknowledgments ..................................................................................VII

Introduction................................................................................................1

Overview.....................................................................................................1

Part I Normative Reflections on the Economy.....................................13

Section I Multiple Discourses on the Economy ....................................15

1. The Interconnection of Moral and Economic Theory ......................17

I. The Moral Discourse on Economic Reality........................................17

II. The Economic Discourse on Economic Reality ................................23

Conclusion ................................................................................................24

2. Economics and Politics in the Architectonic of Hegel’s Thought....25

I. The Rejection of the Rousseau-ian Direct Democracy......................25

A. Hegel’s Analysis of the Enlightenment Period, Absolute Freedom,
and the Moral Vision of the World........................................................26
B. The Rousseau-ian Direct Democracy ...............................................28

II. Rejection of Universal Suffrage.........................................................30

III. Hegel's Own Solution........................................................................31

A. The Individual Representing the Universal ......................................31
B. The Universal Made Available to the Individual..............................32
C. The Transition from Economics to the State ...................................34
Conclusion ................................................................................................35
X Table of Contents

Section II Hegel and Political Economy................................................37

3. The Ethical Function of the Economy................................................39

I. Hegel’s Concept of Freedom ..............................................................40

II. Hegel’s Arguments in Favor of a Free Market ................................49

III. The Proper Relation between State and Free Market ...................63

Conclusion ................................................................................................69

4. The Economic Order: A Human, Not a Natural Institution............71

I. Adam Smith’s Ontology of the Economy ..........................................71

II. The Function of Property...................................................................72

III. The Neo-Liberal Economic Philosophy...........................................76

IV. Philosophical Significance of the Neo-Liberal Movement .............78

V. The Free Market as a Subsidiary or as an Absolute Value.............80

VI. Beyond Internal Restrictions of the Free Market...........................83

VII. Freedom and the Free Market........................................................85

Conclusion ................................................................................................88

Section III Tightening the Argument A Philosophical Dialogue with

Economists................................................................................................89

5. The Concept of “Merit Good” and the History of Economic

Thought.....................................................................................................91
I. The Problem..........................................................................................91

II. Justification of the Term “Merit Good” ...........................................98

III. Justification of the Different Kinds of Merit Goods ....................100

Conclusion ..............................................................................................106
 Table of Contents XI

6. Objecting to a Libertarian Attack on Governmental Functions in

the Economy: The Concept of “Public Good” ...................................113

I. The Thesis in a Nutshell....................................................................114

II. Problems with the Concept ..............................................................116

A. Objections from the Outside. Malkin and Wildavsky:
The Concept “Public Good” Has No Epistemological Validity..........116
B. Mistakes Made by Insiders: The Concept of Public Good Is an
Ideal Concept as Are the Concepts of Private and Merit Good...........119

III. In Search of a Definition.................................................................126

A. An Enumeration of the Characteristics Used to Classify
an Economic Activity or an Economic Good as a Public Good..........126
B. Reduction of the Many Characteristics to a Few Crucial Ones ......130

IV. Implementation Problems ..............................................................135

A. Samuelson: The Non-Rivalness in Consumption ...........................135
B. Olson: Impossibility of Exclusion ..................................................141

Conclusions.............................................................................................144

Part II Applications ..............................................................................147

Section I Reflections on the Political Economy in the US .................149

7. Structural Deficiencies in the American System............................151

I. After Nozick and Rawls ....................................................................151

II. Justice. Concern for the Common Good: The U.S. System and
“Interest Group Liberalism” or “Laissez-Faire Pluralism” ..............153

III. Freedom. Hegel's Good Society .....................................................161

A. The Government .............................................................................161
B. Free Market.....................................................................................167

IV. The Bishop’s Pastoral: A Religiously Based Economic Ethic .....174

Conclusion ..............................................................................................178
XII Table of Contents

8. Unjust Redistribution in the American System ..............................181

I. An Opportunity for Collective Gains ...............................................181

A. An Argument Based on Expected Dollar Gains .............................181
B. An Argument Built Upon the Assumption of Intersubjective
Utility Interdependence .......................................................................184

II. The Opportunity for Collective Gain is a Public Good .................186

III. The Moral Argument ......................................................................190

IV. The Current Method of Subsidizing Children in the

United States...........................................................................................191

Conclusion ..............................................................................................194

Section II
Challenges in Transforming Command Economies ...........................197

9. The Role of Religion and Civil Society in a Transformed Command

Economy .................................................................................................199

I. A Hidden Challenge in the Transition to the Free Market ...........199

II. Arguments in Favor of the Free Market ........................................201

A. Primary Argument .........................................................................201
B. Secondary Arguments....................................................................204

III. The Social Question and the Limits of the Free Market..............207

IV. To Which Institutions Should One Turn in Addressing the Social

Question and Other Problems Arising from a Free Market?............209
A. The Redistributive Aspect of the Social Question..........................209
B. The Efficiency Aspect of the Social Question ................................211
C. Putting the Arguments Together.....................................................219

Conclusion ..............................................................................................220
 Table of Contents XIII

Section III Philosophy of Economics and Catholic

Social Thought .......................................................................................221

10. Overlapping Ideas: Catholic Social Thought and Recent Nobel

Laureates in Economics.........................................................................223

I. Multiple Authorities in Economics .................................................223

A. The Authority of Economic Theory ...............................................223
B. Religious Authority and Economics ...............................................234

II. Overlapping Authority.....................................................................237

A. Beyond the Bator Model: More Moral Options in Economic
Reasoning ............................................................................................237
B. Religious Documents Use (Submit to) Economic Reasoning ........239

III. Economists and Catholic Social Thought......................................241

A. Buchanan and the Moral Idea of Fairness in Starting Positions ....241
B. Stiglitz: Criticizing Economic Theory in the Name of both Economic
and Moral Goals ..................................................................................243
Conclusion ..............................................................................................245

Conclusion ..............................................................................................247

References...............................................................................................257

Indices .....................................................................................................273
Proper Names ......................................................................................273
Subjects ...............................................................................................277
Introduction

Overview

This book is a philosophical reflection (using mainly Hegel, in addition to

Adam Smith, Kant, Marx and Catholic Social Thought)1 about the socio-
political dimension of economics. In it I both agree and disagree with the
slogan that “the least government is the best government.” I agree with the
slogan, in particular as it applies to the economic domain. Adam Smith
taught us that rational and self-interested individuals, left by themselves,
create a more efficient and reliable economic system than one in which the
government has a heavy role as was the case in his time with the mercan-
tile system (Smith, 14, 651). Ludwig von Mises demonstrated the same
idea for the communist command economy (Hayek 1935, 87–130). I dis-
agree with the above mentioned slogan if it is interpreted as suggesting that
we can best forget about the role of the government for a good functioning
economy. Instead, I will argue that the government has an important func-
tion in creating the proper regulations and the wise institutional arrange-
ments which will allow the economy to flourish in a more efficient, fair
and humane way.
This book is interdisciplinary in nature. It is a philosophical and ethical
reflection on economics. Hence, I make use of philosophical ideas, often
but not exclusively those of Hegel. I reflect philosophically on economic
concepts. I analyze the influence of moral and ethical ideas upon econom-
ics, and I argue that there is an important role for the government in pro-
viding the proper institutions for the economy to work, to work efficiently,

1
It is true that Catholic Social Thought is part of a theological tradition, and some might
feel that it therefore has no place in a philosophical reflection on the economy. However,
religious and theological thought rooted in the natural law tradition is recognized as a le-
gitimate part of philosophy under the name of natural theology (theologia naturalis). Thus
the Cambridge Dictionary of Philosophy distinguishes supernatural theology from natural
theology. About the latter, the Dictionary states that it “uses the methods of investigation
and standards of rationality of any other area of philosophy” (Audi 1995, 795). In so far as
Catholic Social Thought is rooted in natural law and is thus part of natural theology, it has a
recognized and legitimate place in philosophical debates.
2 Introduction

and to work humanely. Philosophers, economists, political scientists, and

theologians might be interested in different parts of the book. At the end of
this introduction, I provide some guidance for what sections may interest
different readers. I consider each chapter a separate part of the book and
able to be read on its own.
The book is divided in two parts. Part I consists of normative reflec-
tions on the economy and contains three sections. Section I reflects on the
interconnections between the multiple discourses on the economy. Section
II presents Hegel’s claim that the economic order is an ethical institution
and defends his ontological view of the economy against the one of Adam
Smith who considered the economy to be a natural system (Smith, 651). I
use Adam Smith’s views on property as an ad hominem argument against
Adam Smith himself. I also stress that the neo-liberal program for the
economy demands a Hegelian view of the ontology of the economic do-
main. Section III is a dialogue with economists about their concepts of
public and merit goods. These two concepts point to economic phenomena
where collective action is desirable or necessary. This chapter defends a
Hegelian ontology of the economic domain through analysis of technical
concepts used by economists themselves.
Part II of the book consists of sections, each containing an application
derived from the normative analysis. In Section I, I gather the views of au-
thors belonging to different academic disciplines pointing to failures in late
capitalism, in particular the failure of American capitalism. I use Hegel to
highlight the structural challenges facing a society which relies on the free
market and a constitutional government. I point to one area – child support
– where the U.S. approach can be called inefficient and unjust. In Section
II, I reflect on the challenges faced by communist societies wanting to
transform their command economies into a free market economy. Relying
on a Hegelian ontology of the economy I argue that attention must be paid
to both to pure economic changes as well as to changes in the socio-
political sphere. In Section III, I draw attention to an overlap of ideas
found in Catholic Social Thought and in the publications of some recent
Nobel Prize winners in economics (Buchanan, Sen, Stiglitz). These two
quite different methods of thinking defend the crucial structuring role of
the government for a well functioning economy.
Throughout the book I develop four major ideas or themes. First, I de-
fend the ontology of the economic domain as proposed by Hegel and the
neo-liberals: the economic order belongs to the domain of values. Hegel
does so by calling the economy an ethical institution. The neo-liberals do
so, because they believe that the economy can be regarded as a tenuous
human institution worth supporting and defending since it promotes the
value of economic efficiency. This ontology is different from Adam
 Introduction 3

Smith’s who saw the economic domain explicitly as a natural system that
would be efficient so long as princes and governments did not foolishly in-
tervene with it.
The writings of Adam Smith provide arguments for the proposition that
the economic domain is a human arrangement and can thus be expected to
contribute positively to ethical goals. Smith’s arguments – which undercut
his own ontological views of the economic domain – can be found in his
reflections about the need for property arrangements (Smith, 670), his ar-
guments for some government control of the banking system (Id., 308,
313) and his claim that the government (or in Adam Smith’s terminology:
the sovereign) has important functions to perform for the proper and effi-
cient working of the economy (Id., 651, 740, 768).
Hegel’s claim that both property rights and economic efficiency are
means toward and objective forms of human freedom implies that institut-
ing property rights and pursuing efficiency should not be done in a way
that violates the foundational principle of freedom. Allowing some people
to starve to death in order to either promote social economic efficiency or
uphold property rights becomes unacceptable because it destroys the free-
dom that it is supposed to nurture. Thus, I derive a justification for one of
the goals of the modern welfare state: the creation of a safety net for all.
Using a further Hegelian argument, I point out, however, that welfare
measures violate a principle of the free market. As that principle is itself a
harsh principle (produce, produce efficiently and produce what others want
or you will go bankrupt and/or starve to death), the violation of it for the
benefit of the least well off will unavoidably produce resentment in those
on whom taxes are imposed. This is natural, since paying for the welfare
of others appears to give to these others the privilege of escaping the harsh
principle of the free market: produce or you will go hungry. Resentment
results from the perception that some are allowed to escape the harsh prin-
ciple of the free market at the expense of the ordinary taxpayer, while at
the same time this taxpayer remains subject to this harsh principle and fur-
thermore is asked to pay so that others may be exempt from its demands.
Resentment, therefore, limits the possibility of the modern state in helping
the economic domain achieve the ethical goal of providing properly for
all.2
If the claim, that the economic order is not a natural system but a useful
human institution is valid then an inevitable question arises: “What is the
contribution to the human good of the emerging new economic order so
well described by Adam Smith?” Hegel answers that the emerging new
economic order can deliver something that the utopian political ideals of
2
Resentment also has the positive function of pushing society to eliminate any wasteful
spending for the poor.
4 Introduction

Rousseau cannot, i.e. a form of radical individualism that does not destroy
the institutions which necessarily organize the lives of individuals. Hegel
makes his point in two steps. First, he shows that Rousseau’s utopian
ideas necessarily lead to Robespierre’s terror. Second, he accepts Adam
Smith’s concept of the invisible hand which connects constructively radi-
cal individualism in economics with social productivity. Hegel goes be-
yond Adam Smith by looking for the many ways in which the economic
domain educates the individuals for his social destiny. Hegel adds to
Adam Smith’s notion of the “invisible hand” the functions of the corpora-
tion, work, and the work sphere (Stände), all of which help to transform
selfish economic individuals into social beings. One important positive
consequence of the socialization process imposed by the economic order
on economic individuals is the formation of socio-economic groups and
structures. Such group formation is, for Hegel, essential for effective po-
litical activity.
A second major idea developed in the book follows naturally from the
ontological claim that the economic domain belongs to the ethical order.
Indeed, if the ontological claim is true, it, then, follows that an economic
analysis of the economic domain will inevitably hit upon ethical (moral)
problems. As the government is often assigned the role of intervening in
the economy on ethical grounds, it is inevitable that an economic analysis
will also point to political problems. Thus, in analyzing the economic do-
main, it seems inevitable that moral, economic and political discourses will
be intertwined. I argue that this occurs when economists introduce the
technical concepts of “public good” and “merit good,” when public docu-
ments (e.g., church documents about a just economy) advocate the use of
moral criteria in the economy, when proposals are made to transform old
command economies (Russia and Eastern Europe) into free market
economies, and when academics analyze the failures of the American
socio-economic system (Lowi) or all Western economic systems because
interest groups have come to have too much influence (Briefs, Olson).
Let us develop the claims made by some academics. Goetz Briefs ar-
gues that the Western world has witnessed two parallel developments with
undesirable moral consequences: one in economics and one in politics.
The development in economics is the change from a competitive economic
system where the competing units are individuals towards one where the
competing units are interest groups. The development in politics is the
change from a democracy which is metaphysically or religiously grounded
(Calvin’s Geneva) to a democracy that is philosophically grounded in
some combination of Enlightenment philosophy and utilitarianism, and
then to a pragmatic democracy that has given up most theoretical justifica-
tion by becoming a bargaining democracy. A bargaining democracy in an
 Introduction 5

era of interest groups means that the government will negotiate with and
thus legitimize the existing powerful groups. Those individuals who are
not organized or whose organization is not powerful will lose. According
to Briefs, the third phase of democracy combined with the second phase of
capitalism creates a societal organization that cannot pursue the common
good.
Lowi derives similarly pessimistic conclusions about the American
situation. He demonstrates that the federal government has expanded its
function by including distribution and regulation among its tasks. In order
to perform these enormously burdensome tasks, the Congress has changed
its method of legislation. Instead of preparing detailed legislation after ex-
tensive public hearings and debates, Congress now often passes legislation
without much debate, producing legislation that lacks detail. Congress
creates an agency with the task of fleshing out the details. Agencies in
turn flesh out the details by negotiating with the relevant powerful interest
groups. According to Lowi such a process cannot lead to justice because
justice requires just rules and the current process does not pay enough at-
tention to the creation of rules. Lowi proposes a new form of government:
judicial democracy. In such a democracy, the government would curtail its
tasks and demand from Congress specific legislation after thorough and
public debate.
Where Briefs and Lowi focus on the moral failures of contemporary
socio-economic systems, Olson investigates the loss of economic effi-
ciency in democratic societies with multiple interest groups. Interest
groups take a long time to form. Once they are successful, they tend to
stay in business. Their business is to protect the interests of their members
even against innovations if they are perceived as harmful to their members.
In resisting some innovations interest groups create a growth retardant and
thus produce economic inefficiency.
One example of a policy which is simultaneously inefficient and unjust
is the method of child support in the United States. Because part of the
support is given as a deduction against taxable income and another part is
given as a non-refundable credit against tax liabilities, this method of child
support has the perverse result of providing fewer tax dollars per child to
support children in poor families than for children in more wealthy ones.
Next, I turn to Hegel who points to structural dangers in modern society,
particularly dangers resulting from the relationship between the economic
and the political order. Hegel perceived the need for a proper representa-
tion of economic interests in the political system, but he also understood
the threat that the excessive influence of economic interests can play in the
political process. A part of Hegel’s solution to the challenge is now unac-
ceptable, i.e. the demand for a hereditary monarchy and a hereditary upper
6 Introduction

house in parliament in order to guarantee that not all politicians are de-
pendent upon the economic domain. At the same time, the alternative in
the United States is not meeting the challenge for which Hegel thought that
his solution was a viable answer. A reading of Hegel allows us to see the
structural origin of the unacceptable situation as analyzed by Briefs and
Olson for all Western societies and as analyzed by Lowi for the United
States in particular.
A third major idea of the book is the claim that economic goods and
services need to be distinguished as private, public and merit goods. Pri-
vate goods are goods where property rights are effective. For example, if
people want to enjoy bread they have to pay for it, and, having paid for it,
nobody else is entitled to enjoy it. The competitive free market is gener-
ally credited with being an efficient mechanism for the production and dis-
tribution of private goods. There is a tendency to ask the government only
to enforce property rights in the handling of private goods. By introducing
the idea that the government should institute banking regulations and in-
troduce and enforce anti-trust regulations, the neo-liberals have assigned
the government positive tasks beyond the one of enforcing property
rights.3
The terms of the debate about the role of the government change when
economists discover that there are goods and services that have character-
istics, which do not fit the category of private goods. Economists have
discovered that some goods and services have technical or factual charac-
teristics which make them exceptions to the idea of private goods. Such
goods and services have been termed public goods and defined as goods
characterized by non-rivalry in consumption and unenforceability of com-
pensation. Let me clarify. Indeed, a good such as a street light in a back
alley has the factual (technical) property that if one neighbor buys a back
alley light all the other neighbors can enjoy the same light without the first
neighbor losing any utility of that light (non-rivalness in consumption). At
the same time the first neighbor who bought the light cannot extract a
payment from the second neighbor (appropriation of legitimate payment is
impossible; compensation is unenforceable). In many cases such public
goods will not be bought because one person alone cannot afford to do so
even though the price of the good is less than what the community jointly
is willing to pay for. Thus, the competitive free market mechanism will
often fail to optimally provide public goods. Some economists then argue
that such a failure of the market mechanism leaves open the possibility for
government initiative.

3
There are disagreements among the neo-liberals of the Chicago school on what regula-
tions the government should provide. For one famous proposal about regulations of money
supply see Friedman, 1962, 37–55.
 Introduction 7

A libertarian thinker, Aaron Wildavsky, and his student, Jesse Malkin,

sharply criticize this line of thinking. These authors argue that the eco-
nomic profession uses at least five different definitions for the concept of
public good and, thus, does not possess an agreed upon definition. And, as
different countries treat different goods as public goods, they conclude that
the concept of public good is not an objective concept but rather a social
construct where different countries, by an act of political will, declare dif-
ferent goods to be public goods.
I argue against such a relativistic view of the concept of public good.
Using a phenomenological method, I argue that economists have noticed
many exceptions to the definition of private goods and used many labels
for these exceptions. The many different labels used to describe anomalies
that cannot be fully analyzed by the concept of private good can be re-
duced to the two separate characteristics which then can be used to define
the new concept of public goods (non-rivalness in consumption (a second
person can enjoy the good without the first person losing any enjoyment
herself and non-enforceability of payment or non-appropriability (the first
person cannot recuperate payment from others who enjoy the good he pro-
vided). The non-rivalness in consumption presents an opportunity for gain
if some form of collective action is taken. However, the non-
appropriability makes it difficult to finance the public good even if collec-
tive action is undertaken. Samuelson analyzes the difficulties that face a
collective action undertaken by the government. Olson analyzes the diffi-
culty faced by those who want to provide the public good by means of pri-
vate groups (interest or pressure groups). On the basis of the argument that
all labels for the concept of public good can be reduced to two characteris-
tics, I conclude that the concept of public good has a specific objective
content. Since the financing method has problematic aspects in both the
case of government initiative and in the case of private initiative, countries
might decide to try solving the financing difficulty in different ways, given
that there is theoretically no perfect solution. However, the fact that there
is no perfect solution for the financing method does not mean that the con-
cept of public good itself becomes completely arbitrary.
The concept of public good identifies a potential gain if collective ac-
tion can be undertaken. The technical concept of public good thus points
to a challenge, even though it does not point to a unique solution. It is im-
portant to notice that the possible role of the government with respect to
public goods is restricted to helping the individual consumers realize a po-
tential for gain which they cannot always realize by themselves. If the
government can obey the Pareto principle (no one is made worse off and at
least one is made better off), then economic thinking argues that the gov-
ernment’s role in providing public goods is self-justifying.
8 Introduction

A problem arises because in some cases the requirement that nobody

must be harmed in the provision of a public good fails. Somebody will be
hurt or will claim to be hurt. The normative idea behind the concept of
public good is that any one harmed in the provision of a public good
should receive compensation. Thus, if a farmer experiences a loss because
his land is confiscated for the construction of a highway, then the people
wanting the highway must be willing to compensate the farmer. If the
farmer cannot be satisfied either because the farmer is asking an outra-
geous price or because there is no appropriate mechanism for calculating
and providing compensation, the implementation of the public good is re-
grettably deficient. This is the case because, in the provision of public
goods, the aim of the government is to help consumers capture an opportu-
nity for gain without hurting anyone.
Musgrave has pointed out that some governmental activities in the
economy do not fit the definition of public goods. He gives as examples:
obligatory education, free school lunches, and sin taxes on alcohol. He de-
fines merit goods (descriptively) as goods that are so meritorious that the
appropriate authorities are justified in declaring that the goods’ level of
consumption in the free market is unacceptable. If the judgment is that the
level of consumption is too low (education, school lunches) then we are in
the presence of a merit good. If the judgment is that the level of consump-
tion is too high (alcohol), then we are in the presence of a demerit good.
The descriptive definition of the concept merit good leaves open the ques-
tion of the meaning of “meritorious.” But, even if the idea of meritorious-
ness remains unspecified, the concept of merit good implies that the gov-
ernment has the right to interfere with consumer wishes in the case of
legitimate merit goods. Sometimes the idea of a legitimate merit good is
interpreted politically as having been voted upon in a legitimate way.
The introduction of the concept of merit good by Musgrave creates a
paradox for the economic profession. On the one hand, Musgrave demon-
strates convincingly that a new concept is needed in order for economic
theory to be complete, otherwise there would be some economic activities
without a conceptual home. On the other hand, the new concept of merit
good contradicts a basic assumption of economic theory. Indeed, eco-
nomic theory is the science of how to maximize the utility of consumers
whereas the concept of merit good is about justified interference with con-
sumer sovereignty. The concept of merit good accepts the proposition that
the wishes of consumers as expressed in free market transactions are unac-
ceptable and ought to be interfered with. That implication of the concept
merit good makes many economists feel uneasy about it. In chapter 3 I
argue that Hegel used the idea of merit goods without using the label. In
his book, Hegel als Ökonom (Hegel the Economist), the German philoso-
 Introduction 9

pher-economist, Birger Priddat, makes the same claim. The history of

economic thought shows that economists who describe the total economy
introduce the distinction between the three concepts of private, public and
merit good without using all three labels. From Adam Smith, Henry
Simons and a study by Christian Scheer about education, I construct a
Kantian argument that the idea of merit good has been part of the history
of economic thought even though the label was only introduced in 1956.
My dialogue with the history of economic thought has two additional
results. First, it shows that the idea of merit good has a much wider appli-
cability than the creator of the concept, Musgrave, is defending. The con-
cept not only applies to a limited number of concrete economic activities,
but it also captures the institutional arrangements imposed on consumers
and producers in order to make the market work and make it work effi-
ciently and humanely. Second, one can borrow from the history of eco-
nomic thought the idea that merit goods can be systematically divided into
meaningful and distinct categories, such as government interventions con-
nected to property rights; government interventions aiming at making eco-
nomic transactions more efficient – banking regulation and anti-trust laws;
government policies aiming at improving the education of all people and
finally those aiming at creating a safety net. One, thus, obtains an idea of
the different kind of institutional arrangements for which the government
is responsible. The defense of the different categories does not imply that
agreement exists about the method of governmental regulation or interven-
tion. In this book I do not analyze which regulations in the different do-
mains are the wisest. I only defend the idea that there are specific domains
in which the government has a regulatory duty.
A fourth idea covered by the book is the relation of religious ethics to
economics. Given my thesis that economics belongs to the domain of
values and the fact that values, morality, and ethics are an integral concern
of organized religion, I felt it necessary to reflect on church pronounce-
ments about the economy. I address two aspects in the relationship be-
tween religion and economics.
First, there is the question as to whether the method of religious think-
ing is appropriate in economic matters. I argue that an ethical discourse
about the economy, such as a church document supporting a more just
economy, is subject to risks. It can be abstract and therefore ineffective; it
can point to very concrete economic goals while being naive and/or tech-
nically inconsistent. And finally in advocating specific changes, it might
show itself to be one-sided, partial, or even partisan. I argue that two
church documents, Justice for All (A Pastoral Letter from the U.S. Bish-
ops); and Centesimus Annus (An Encyclical from John Paul II) avoid these
pitfalls.
10 Introduction

Second, I study the effective role that religion plays or could play in
economic theory. Thus, Hegel teaches us that resentment is a feeling
which will necessarily emerge when the government tries to help the econ-
omy achieve the ethical task of providing enough goods and services for a
decent way of living to all, including the poor, the disabled, and the unem-
ployed. This Hegelian argument allows me to make the claim that gov-
ernments making a transition from a command economy to a free market
economy will need help to let their free market economy achieve the ethi-
cal goal of providing for all. Governments making the transition to a free
market economy will, therefore, not only have to introduce freedom in
economic transactions, they will also have to introduce freedom of relig-
ion. I even argue that those governments will have to allow or promote the
institutionalizing of religion in order to have their effective help in dealing
with the social question that arises with particular sharpness in a free mar-
ket economy. Those governments will not only have to allow or possibly
promote the organization of religion, they will also have to allow (pro-
mote) the organization of independent unions, of the association of lawyers
and of economists if they want help in promoting a safe working environ-
ment, an independent judiciary, and free trade policies. Given the impor-
tance of religion in Hegel’s thought and given the sensitivity to the moral
and ethical dimension in economics in both Hegel and church documents
about the economy, it is not surprising to find some similarities in their
views of the economy. Both praise the free market for its productive
achievements. Both regret the inability of the free market to solve the
problem of poverty. Both refuse to abandon the ethical goals they assign
the economy, even if they see that the goals are not reached or might not
be reachable. Both prefer to maintain the tension between the ethical ideal
and the reality rather than provide unrestrained praise for the existing ar-
rangements. Both give the political order an oversight role.
The interdisciplinary nature of the book may attract different audiences.
Readers mainly interested in Hegel should read Chapter 2 for a presenta-
tion of the crucial function of economics in the architectonic of Hegel’s
philosophic system, Chapter 3 for a summary of Hegel’s view of the econ-
omy, Chapter 4 for a dialogue between Hegel and part of the history of
economic thought, and Chapter 7 for the use of Hegel to critically analyze
the American method of relating politics and economics.
Readers mainly interested in political economy should read Chapter 4
for a dialogue between Hegel and part of the history of economic thought,
Chapter 5 on merit goods, Chapter 6 on public goods, Chapter 9 on rec-
ommendations for a transition from a command economy to the free mar-
ket, and Chapter 10 for the argument on the similarity between the ideas of
Catholic Social Thought and those of three Nobel prize winners due to the
 Introduction 11

fact that all stress the need of government to provide the free market with a
proper institutional framework.
Readers interested in practical conclusions derived from philosophical
principles should read Chapter 7 where I critically analyze the structure of
American capitalism, Chapter 8 where I show that the US method of child
support is both inefficient and unjust, Chapter 9 where I develop some rec-
ommendations for the transition to the free market in formerly communist
countries, and Chapter 10 where I review arguments from quite different
traditions about the need of the government to regulate and organize eco-
nomic activity.
Readers mainly interested in ethics and morality should read Chapter 1
where I demonstrate the interconnection between a moral and an economic
discourse about the economy, Chapter 3 and 4 where I argue for ethical
tasks in the economy, Chapter 7 and 8 where I point to moral deficiencies
in the American economic system, and Chapter 10 where I provide ethical
arguments (rooted in the nature of economic reality) for a role of the gov-
ernment in the economy.
Readers mainly interested in a philosophic discussion of the role of reli-
gious ethics in economics should read Chapter 1 where I point to the risks
inherent in religious discourse about the economy, Chapter 7 where I un-
derline a limited similarity between the position of Hegel and that of the
Catholic Bishops’ Pastoral on the economy, Chapter 9 where I argue for
the need of freedom of religion as part of the transition from a command
economy to the free market, and Chapter 10 where I show that technical
economic analysis develops ideas that are consonant with Catholic Social
Thought in that both see the importance of responsible political decisions
for a well functioning economy.
Readers with eclectic interests might find in the abstracts to each chap-
ter more detailed information on the chapter than can be given in the title.
Hopefully, the abstracts will prove useful for guiding those with eclectic
interests.
 Part I

Normative Reflections on the Economy

 Section I

Multiple Discourses on the Economy

1. The Interconnection of Moral and Economic
Theory

Abstract

The economic reality is discussed, analyzed, and judged from different

points of view. At least three points of view have considerable weight to-
day: the economic, the political and the moral. Each of these three points
of view gives rise to a special kind of discourse. Such discourses have
their own style, their preferential subject matter, their own priorities, and
their own methodological requirements. In this chapter I will reflect upon
two of these three discourses: the moral and the economic discourse on the
economic reality, and I will demonstrate that they are unavoidably inter-
twined. The moral discourse must refer to specific economic problems in
order to be relevant. Doing so makes a moral discourse on the economy
technically vulnerable and possibly one-sided. The economic discourse on
the economy, too, becomes unavoidably entangled in moral or ethical
questions due to the problems with public and merit goods. Thus, this
chapter explicitly introduces the claim that ethics and economics are inter-
connected, a claim which Hegel’s philosophy takes for granted, because
Hegel includes the economic domain (civil society) among his three ethi-
cal institutions.

I. The Moral Discourse on Economic Reality

Among the documents that discuss the economic reality and opt for a
moral point of view, one can enumerate pronouncements of the World
Council of Churches, encyclicals of popes, and statements of different con-
ferences of Catholic Bishops. To illustrate this kind of discourse, I will
use the document, “The Economy: Human Dimensions,” which the Catho-
lic Bishops of the United States issued in 1975. In this document we find
the following statements:
18 1. The Interconnection of Moral and Economic Theory

Unemployment is the great peacetime physical tragedy of the nineteenth and

twentieth centuries, and both in its cause and in the imprint it leaves upon
those who inflict it, those who permit it, and those who are its victims, it is
one of the great moral tragedies of our time. (Byers 1985, 469)

It is the moral, human and social consequences of our troubled economy

which concerns us and their impact on families, the elderly and children.
(Ibid.)

Economic prosperity is to be assessed not so much from the sum total of

goods and wealth possessed as from the distribution of goods according to
norms of justice. (Ibid., 470)

The right to have a share of earthly goods sufficient for oneself and one's
family belongs to everyone. (Ibid.)

A just and equitable system of taxation requires assessment according to

ability to pay. (Ibid., 471)

Unemployment frequently leads to higher rates of crime, drug addiction, and

alcoholism. It is reflected in higher rates of mental illness as well as rising
social tensions. (Ibid., 472)

The distribution of income and wealth are important since they influence
and even determine our society's distribution of economic power. Catholic
social teaching has condemned gross inequality in the distribution of mate-
rial goods. (Ibid., 473)

It is not enough to point up [sic] the issues in our economy and to propose
solutions to our national problems while accepting uncritically the presup-
position of an economic system based in large part upon unlimited and un-
restrained profit. (Ibid., 474)

Finally, in the Appendix, we find a call for the following:

... minimum wage legislation; unemployment insurance and protection

against sickness and old age; minimum age limit for working children; legal
enforcement of the right of labor to organize; a national employment ser-
vice; public housing; and a long-term program of increasing wages. (Ibid.,
475)

We find a call as well for “prevention of excessive profits and progressive

taxes on inheritance, income, and excess profits” (Ibid.).
These quotations should be enough to raise three kinds of questions
about such a moral discourse on the economic reality. Indeed such a moral
 I. The Moral Discourse on Economic Reality 19

discourse is unrealistic. If everyone has the right to have a sufficient share

of earthly goods for himself and his family, how can such a right be realis-
tically reached, enforced or implemented if, in fact, there are not enough
goods to go around? Second, such a moral discourse gives advice that is
systematically inconsistent. A moral discourse on the economic reality is
concerned with the human misery that results from unemployment. In the
same document, though, one finds a call for minimum wage legislation,
unemployment insurance and other social services. Some economic theo-
rists, however, teach that such programs, ceteris paribus, result in a higher
cost of labor, which, in turn, diminish the demand for labor and, thus, in-
crease unemployment. Although concern for social services stems from
the same compassion for human misery, as does concern for unemploy-
ment, the moral discourse of this Catholic Bishops’ document displays no
understanding of the possible incompatibility of the implementation of so-
cial services and the decrease in unemployment.
Finally, the moral discourse of the Bishops shows a systematic bias in
favor of what one could call a socialist ideology. Thus, the Bishops' dis-
course questions the profit motive, advocates progressive taxation, and
stresses the role of the government in guiding economic activity and in se-
curing the economic well-being of all. The Bishops do not speak about the
need for entrepreneurial initiative or courage, about the duty to respect the
employer, or the necessity to give a fair day's work for a good wage.
If one ponders over these three kinds of questions, does one not have to
conclude that the moral discourse on economic reality risks becoming a
discourse which is naively unrealistic, technically inconsistent, and ideo-
logically biased? I believe that, indeed, any moral discourse on economic
reality runs these three dangers. Still, I would not want to conclude, as
some colleagues would, that a moral discourse on the economic reality is
invalid. On the contrary, I would argue that while these three risks are in-
herent in a moral discourse, the moral discourse still has its legitimacy.
Let me address consecutively the three risks of a moral discourse about the
economy.
The first risk of a moral discourse is that it sounds naively unrealistic.
However, one should remember that the moral discourse is not about facts
alone; it is also about a telos. Typical of this aspect of the moral discourse
is that it can be valid even though it is not descriptively true of the reality.
Thus, the moral imperative that one should not kill another person for per-
sonal enrichment can be valid, even though robberies and murders occur.
Or put in another way, the belief that there will always be robberies and
murders does not mean that the moral prohibition against murder becomes
naive utopianism. Therefore, the function of a moral discourse is not to
accurately describe reality. Realism in this sense of the word is not a re-
20 1. The Interconnection of Moral and Economic Theory

quirement for a valid moral discourse. A moral discourse should point to a

different dimension than the one that exists in fact and should communi-
cate that this other dimension poses a challenge to human beings because
they can distinguish between a telos and a fact.
The second risk of a moral discourse is that it is technically inconsistent,
in the sense that ineffective attempts advocated to reach the morally desir-
able telos lead to situations worse than the original situations one tried to
correct. For example, the right to have a share of earthly goods sufficient
for oneself and one's family by means of legislation on minimum wages
and social programs might lead to less real income for the labor force.4
This risk is, indeed, real. The theoretical solution is a methodological
awareness of the legitimate domain of different discourses on the same re-
ality. Such awareness exists in the document under discussion as illus-
trated by the following text:

Our concern, however, is not with technical fiscal matters, particular eco-
nomic theories or political programs, but rather the moral aspects of eco-
nomic policy and the impact of these policies on people. (Byers, 469)

The trouble with this solution is that the moral discourse intends and
must intend to influence the real by making people aware of a moral telos.
But, how can one do so effectively if one does not make suggestions about
the ways to implement the moral telos? However, if one were to go that
route, a moral discourse on economic reality cannot honestly avoid talking
about the wage level or the need for social insurance systems. The moral
discourse, however, can avoid the risk of technical mistakes only by avoid-
ing part of the moral intention, which is to make suggestions about the im-
plementation of a moral telos in the reality.5 Clearly such a risk is some-
thing of which the moral discourse must be aware. The implementation
program should be presented as a second part of the moral discourse.
Technical debate over implementation should be allowed, invited and
stimulated as part of the implementation of the moral telos. The moral
discourse cannot present any implementation program as necessarily iden-
tical with the moral telos, which motivated the implementation program.
Similarly, economic discourse is false in questioning the moral telos which

4
Crucial for this argument is the concept of the “Phillips curve.” For a discussion of this
idea, see: Michael Evans 1969, 263–274; Rees; Prasch & Sheth.
5
The avoidance of problems connected with an implementation program for moral con-
cerns might go neatly together with an economic theory à la Samuelson, which assumes
without proof the existence of an ethical welfare function for determining society's bliss
function. The neatness of the combination of these two special forms of discourses derives
from the fact that the two discourses abstain from real dialogue. I will argue that the eco-
nomic and moral discourses are much more interdependent (Bator, 28).
 I. The Moral Discourse on Economic Reality 21

motivated an implementation program on the sole ground that the imple-

mentation program is economically inconsistent. It is not because social
programs indirectly increase the cost of labor and, thus, augment unem-
ployment that it is illegitimate to talk about the relation between unem-
ployment and crime rates, drug addition, and alcoholism (Byers, 472). The
moral discourse has its own legitimacy regardless of the dangers involved
in suggesting implementation programs for moral concerns.
The third risk of a moral discourse is the most puzzling and most dan-
gerous. This third risk, too, is an essential problem of moral life and is al-
ready clearly formulated in Hegel's Philosophy of Right. Hegel argues that
moral life is not the solution to the problem of free will, since moral life
requires the individual to identify with the good as he sees it (Hegel 1967
a, # 132).6 Therefore, moral life unconditionally binds one to do what is
but conditionally correct and good. Moral discourse, therefore, necessarily
runs the risk of systematic bias. Such a bias often occurs in moral dis-
course on the economic reality. Thus, neo-liberals such as Hayek or
Friedman see self-responsibility and initiative as the central elements of a
moral discourse on the economic reality. Clearly, these virtues are virtues
connected with the entrepreneurial class. The question one can pose to
these neo-liberals is: are these virtues the supreme virtues of moral life, or
are they just refined forms of self-interest?
On the other hand, the statement by the Catholic Bishops of the United
States in “The Economy: Human Dimensions” concentrates on the right of
labor to organize, the right to just and minimum wages, the right to a suffi-
cient share of wealth, and the right to progressive taxes on inheritance, in-
come, and excessive profits. It decidedly concentrates its moral discourse
on the plight of labor, the poor, and the needy. One could ask: should not
a moral discourse on economic reality take into account all economic sub-
jects – rich and poor, the successful and the needy? To this objection, I
find a possible answer in the statement by the Bishops. They state, “We
hope in these limited reflections to give voice to some of the concerns of
the poor and working people of our land” (Byers, 469). As for the possible
objection that the statement limits itself to a subgroup of economic sub-
jects, one can read the following answer:

…we are guided by the concern for the poor and afflicted shown by Jesus,
who came to ‘bring good news to the poor, to proclaim liberty to captives,
new sight to the blind, and to set the downtrodden free.’ (Ibid., 470)

6
Hegel’s Philosophy of Right subsequently referred to as PR. When quoting Hegel, I will
give, where possible, paragraph numbers, signaled by the sign #.
22 1. The Interconnection of Moral and Economic Theory

In that text, the Bishops of the United States in 1975 make an appeal to
their ultimate authority for explaining the possible systematic bias of their
moral discourse on economic reality.
Given that Christianity aims at providing a universal message, which is
valid for all human beings, one might therefore expect a tension in Christi-
anity between its preference for the poor and its claim to universality. One
can observe such a tension in the change of formulation of the principal
norm for judging an economic policy as just or unjust in the first draft and
the final version of the Catholic Bishops’ Pastoral on the economy. Thus,
in the first draft, the Bishops write:

In addition, our perspective and our conclusions are shaped by an overriding

concern for the impact of decisions and policies on the lives of people, espe-
cially the poor. Our fundamental norm is this: Will this decision or policy
help the poor and deprived members of the human community and enable
them to become more active participants in economic life? (Catholic Social
Teaching and the U.S. Economy. First Draft, # 21, 343)

In the first draft of the Pastoral, the fundamental norm of justice is re-
stricted to the impact a decision or a policy has on only part of the popula-
tion: the poor and deprived people. The formulation of the fundamental
norm of justice seems to be positively concerned only with part of human-
ity. The Catholic Bishops seem to feel that the above first formulation of
the fundamental norm of justice was defective, and they change it in the
final version into a text which affirms both the particularism and the uni-
versalism present in Christianity. Thus, the final version reads:

The quality of the national discussion about our economic future will affect
the poor most of all, in this country and throughout the world. The life and
dignity of millions of men, women and children hang in the balance. Deci-
sions must be judged in light of what they do for the poor, what they do to
the poor and what they enable the poor to do for themselves. The funda-
mental moral criterion for all economic decisions, policies and institutions is
this: They must be at the service of all the people, especially the poor. (Eco-
nomic Justice for All. U.S. Bishops’ Pastoral Message and Letter, # 24,
415)

The tension in the Christian conception of justice is even illustrated in

the double criterion enunciated in the final version of the Bishops’ Pastoral
– not just in the change in formulation from the first draft to the final ver-
sion. On the one hand, the paragraph in the final version proclaims that
decisions must be judged according to what they do for and to the poor.
On the other hand, the paragraph announces that economic decisions must
be in the service of all people, especially the poor. The tendency to make
 II. The Economic Discourse on Economic Reality 23

the poor the sole concern of justice is a bias sometimes present in the
Christian moral vision of the economy.

II. The Economic Discourse on Economic Reality

In Western economic discourse, by habit or by argument, a normative

status is given to the free market: i.e., the free exchange of goods between
individual decision-makers. Such a predilection for the free market,
though, creates two problems. The first arises because there are goods
which have technical characteristics that preclude the market mechanism
as an efficient exchange mechanism for them. In the literature, these
goods are usually called public goods. Special characteristics of these
goods are, among others, their indivisibility, lumpiness, jointness of sup-
ply, external economics (or dis-economics), and decreasing marginal pro-
duction cost. An example of such a good is a bridge that allows many
people to save time when they have to cross the river even if only one firm
paid for the bridge. By extension, one can argue that beautiful landscapes,
street lights, clean air, railroads, etc., are public goods.7
The second difficulty arises because there are goods which are so im-
portant that appropriate authorities act as if they have the right to influence
the production and/or consumption of these goods. The appropriate au-
thorities act as if they can violate the principle of consumer sovereignty
which is the foundation of the free market system. Some interesting ex-
amples are: obligatory education, obligatory inoculation, and taxation of
tobacco and liquor in order to diminish their consumption. Clearly, such
goods are not private goods. They are not public goods because in the case
of public goods, the appropriate authority (the state) only helps individuals
reach an optimum that they want but cannot achieve by themselves. The
justification for government action concerns helping individual consumers
whose preferences the state respects. This kind of help is called “voluntary
exchange theory of taxation.” In the case of obligatory education, etc., the
government acts not to help consumers reach a maximum according to the
preference-ordering of individuals; on the contrary, the government acts
with the intention of interfering with the preferences of individuals be-
cause it considers these particular goods meritorious or demeritorious. In

7
For some interesting survey articles, see Head 1974. The problem of public goods will be
discussed explicitly in chapter 6 of this book. I will also make use of this concept when
clarifying Hegel’s views on the function of the state in the economic domain (Chapter 3).
24 1. The Interconnection of Moral and Economic Theory

his classic book, The Theory of Public Finance, Musgrave labels desires or
wants for these goods “merit wants” (Musgrave 1959, 13–16).8
The presence in the economy of goods called “public goods” introduces
questions such as the government’s right to deny the individual rights be-
cause the economic theory of public goods implicitly assumes the right of
the government to make use of the power to tax or the power to invoke the
right of pre-eminent domain. The presence of merit goods introduces the
question whether the government has the right to decide what are good and
what are bad consumer wishes. In Chapters 5 and 6, I will more fully de-
velop the necessity of value-considerations imposed on an economic dis-
course which happily or reluctantly accepts the concepts of public and
merit good.

Conclusion

The reflections in this chapter started with the fact that there are several
possible discourses on economic reality. I concentrated on the moral and
the economic discourse. It is possible to argue that these two discourses
operate at two different levels. Nevertheless, because morality wants to be
effective in the world, moral discourse on the economic world needs to go
beyond mere moral exhortations. Moral discourse needs to provide moral
approval for certain economic policies and disapproval for certain other
economic policies, even at the risk of being technically vulnerable.
The second puzzling thought is that the economic discourse cannot be
complete without including in its own discourse ethical considerations.
Economic discourse can then be value-free only if economists accept that
their discipline is incomplete by excluding the concepts of public and merit
good.
In the rest of the book, I will use Hegel as a guide for articulating the
ethical dimensions of the economic domain and doing so in a way that
avoids as much as possible the dangers of the one-sidedness of a purely
moral discourse. Hegel does so by taking freedom as his norm.

8
The problem of merit goods is discussed explicitly in chapter 5 of this book. I also make
use of this concept when clarifying Hegel’s views on the function of the state in the econ-
omy (Chapter 3). For an anthology containing all the texts written by the creator of the
concept, Richard Musgrave, a selection of secondary literature, and some important appli-
cations, see Ver Eecke 2007.
2. Economics and Politics in the Architectonic of
Hegel’s Thought

Abstract

This chapter analyzes the relationship between economics and politics as it

appears in Hegel’s Phenomenology of Mind, the Philosophy of Right, and
the Encyclopedia of the Philosophical Sciences. Hegel realizes that West-
ern civilization was striving towards greater institutional protection of in-
dividual freedom. He interprets both Rousseau’s utopian democracy and
the claim for universal suffrage as unacceptable expressions of that ten-
dency. He interprets the terror of Robespierre as the logical consequence
of Rousseau’s utopian ideals. Hegel learned from the Scottish economists
that the new economic order provides a better institutional protection of
individual freedom because it can tolerate and turn to its own advantage a
form of radical individualism that proved disastrous for the political do-
main. Hegel therefore gives the emerging free market a central place in
the good society as described in his Philosophy of Right. Hegel’s chal-
lenge was to show the educating function of the new economic order.

I. The Rejection of the Rousseau-ian Direct Democracy

The passage in The Phenomenology of Mind, which analyzes the Rous-

seau-ian democratic ideal, has the title: “Absolute Freedom and Terror”
(Hegel 1967 c, 599–610). This passage is preceded by an analysis of the
Enlightenment and followed by an analysis of the moral vision of the
world. I will, first, draw attention to how Hegel connects his analysis of
“Absolute Freedom” with these two other moments in the culture of West-
ern Civilization and will then analyze Hegel’s specific argument according
to which the ideal of “absolute freedom” must necessarily fail.
26 2. Economics and Politics in the Architectonic of Hegel’s Thought

A. Hegel’s Analysis of the Enlightenment Period, Abso-

lute Freedom, and the Moral Vision of the World

The Enlightenment period produced a very critical intellectual attitude to-

wards the political institutions of its time. However, few political institu-
tions changed during this period. The Enlightenment created an intellec-
tual climate whereby the actual political institutions were deprived of their
traditional theocentric justification. Instead, it was thought that political
institutions could find justification and legitimacy only in what they meant
for the people.
Hegel connects this relationship between the Enlightenment and the po-
litical reality with the new image (notion) that consciousness developed
about itself. He discusses the Enlightenment period in his Phenomenology
of Mind as part of the section on Spirit. In this section, consciousness has
already reached the insight that, as a self, the ego gets its form from social
institutions. Thus, social institutions are not a dead reality. Instead, they
are a formative part of the living reality. This can be explained, Hegel
thinks, because social institutions (objective spirit) have three interdepend-
ent aspects. First, the social institutions have objective reality. They exist.
Second, the social institutions have a meaning for the people. It is this
meaning to which the people appeal. It is this meaning, too, which is
transformed into an ongoing project of improvement and defense of the ex-
isting institutions. Third, as a result of the continuous projects related to
social institutions, the existing institutions are at any time also a human
product (Boey 1970, 57 ff).
Addressing the first aspect of social institutions, i.e., that they have ob-
jective reality, the Enlightenment did not advocate their destruction.
Rather, it allowed the continuation of the existing institutions. However,
such a moderate approach does not allow consciousness to claim that it is
fully in control of itself. Indeed, as the substance of the self is produced by
social institutions, consciousness cannot claim to be self-created. The sub-
ject and the social substance out of which it is made, therefore, do not yet
coincide. On the other hand, as we will see, the social substance is not
fully alien to the subject, either. The subject is capable of imposing a
predicate upon the substance: it must be useful for the subject.
The Enlightenment period concentrated its efforts on the second aspect
of social institutions. Indeed, Enlightenment philosophy affirms that the
meaning of these institutions is to be found in the service they can render
to the individuals as they live together in a historical community. Institu-
tions are to be responsive to individuals. Individuals are not supposed to
be required to have blind faith in the validity of institutions. Responsive-
 I. The Rejection of the Rousseau-ian Direct Democracy 27

ness, or in Hegelian terms, utility, is the concept, the notion, by which the
individual in the Enlightenment period reconciled himself to the fact that
his self is formed by social institutions. In other words, the possibly alien-
ating dimension of the influence of social institutions upon the self is over-
come by consciousness affirming the principle that those social institutions
have to be useful for the self.
The willingness of consciousness to require nothing more from social
institutions than their utility in order for consciousness to be at peace with
itself as a social being is a fact that Hegel expresses as follows, “Con-
sciousness has found its notion in the principle of utility” (Hegel 1967 c,
599).
The ideals behind the French Revolution propelled a movement created
by consciousness to address actively the relationship between itself and the
social institution–the first and third aspect of a social institution. In order
to be at peace with itself as a social being, consciousness now requires that
the social reality be not just useful, but its own product. If this can be
achieved, the ego, as a social self, would be a product of its own enterprise.
Such a requirement means that consciousness aims at “absolute freedom,”
i.e., it aims at producing the social reality which, in turn, gives content to
consciousness itself.
But an individual’s social self is not independent of the social self of
others. When consciousness insists upon self-determination of the social
self, it is unavoidable that a consciousness will conflict with other con-
sciousnesses for the determination of the social reality.
Hegel’s dialectical solution to this problem consists of the willingness
of consciousness to withdraw from the social reality while finding a way to
determine itself as a self. For this to be possible, consciousness must not
define itself any longer as a social self, but as a moral self. Indeed, moral
self-determination allows for the self-determination of the self without
necessarily having to impose upon others the content of the moral self that
one accepts as unconditionally binding for oneself.
Thus, it is the lack of full self-determination as a social self which
forces consciousness to move from the Enlightenment attitude to the aspi-
rations of the French Revolution. It will be the insight that terror is un-
avoidable if consciousness insists on such a full self-determination of the
self as a social self, which will force consciousness to move from the disil-
lusioned aspirations of the French Revolution to the moral vision of the
world (Smith 1989, 85 ff.).
28 2. Economics and Politics in the Architectonic of Hegel’s Thought

B. The Rousseau-ian Direct Democracy

For Hegel it is not enough to show that a particular self-image, a notion, of

consciousness is unsatisfactory. He looks for indications that conscious-
ness is, de facto, already further than its own notion.
Hegel makes precisely this move when he comments that the autonomy
of the social reality in the Enlightenment period is but an empty semblance
because consciousness considers itself to be the legitimizing ground for
any social organization.9 If there is still an “in-itself” dimension to the so-
cial reality, it exists legitimately only as a reality for somebody else – for
consciousness.
The consciousness that serves as the legitimizing ground for the social
reality is individual consciousness. It is, however, in its function of being
the representative of all consciousnesses that individual consciousness is
the legitimizing ground of social reality. Consciousness must conceive of
itself as a universal subject in order to conceive of itself justifiably as the
legitimizing ground for all social reality.
Consciousness is not just thought. Consciousness is also will.10 The
social reality is not just something that exists. It is also something that is
constantly produced. Now, in order for consciousness as will to be the
ground of social reality – itself seen as a product – it is necessary that this
consciousness participates in the making of this social reality. Inasmuch as
consciousness considers itself to be the universal subject – and not an indi-
vidual universal, an incarnated universal – each individual must require
that the social self be its own product. This can occur only if the existing
distinctions in social groups, social classes, or governmental functions are
abolished.
This results in the legitimate social reality being reduced to what an in-
dividual (as self-conceived universal) actually wills. Nothing that is not
actually willed by an individual is acceptable or legitimate.
This consequence permits the formulation of a first objection to a Rous-
seau-ian direct democracy. Indeed, if only that which is actually willed is
legitimized, then what was willed in the past remains legitimized only if
the individual still wills it now. Something that exists objectively has no
legitimacy independent of the actual will of the individual as a representa-
tive of universal consciousness.11 But the ground for legitimacy is the way
individual consciousness conceives of itself as a representative of universal

9
Ibid., 601, “individual consciousness conceives the object as having no other nature than
that of self-consciousness itself.”
10
Ibid., 600–601, “this will is not the empty thought of will.”
11
Ibid., 602–603, “in which it [consciousness] lets nothing break away and assume the
shape of a detached object standing over against it.”
 I. The Rejection of the Rousseau-ian Direct Democracy 29

consciousness. This conception (notion) of consciousness, conceived one

day, cannot be normative for consciousness the next day.
Here Hegel's argument is essentially an anthropological argument. The
social-political argument is a derivative argument. Indeed, Hegel argues
that a consciousness, which requires only its actual will as the legitimizing
ground for commitment, submission, or obedience to an objective reality,
has created a legitimacy requirement that is so strong that consciousness is
not even obliged to loyalty to past commitments made by itself. Indeed,
nothing objective is legitimate. Only the actual will produces legitimacy.
If consciousness is not bound by past commitments made by the indi-
vidual himself, how can it be bound to commitments made by others? This
anthropological argument has implications for the socio-political reality.
For Hegel, a Rousseau-ian anthropology does not allow the creation of a
constitution, i.e., the production of a binding thought; it also does not allow
the organization of an effective government.
Hegel expands this last argument building on the assertion that the uni-
versal, in order to be able to act, must incarnate itself in a particular indi-
vidual. Indeed, to act is to do something determinate, something particu-
lar. Only an individual can do so. For the universal to be effective, it is
necessary that an individual takes it upon himself to represent effectively
the universal. But the Rousseau-ian anthropology does not possess a the-
ory of mediation. Thus, if one individual performs the tasks of the univer-
sal, others are necessarily excluded. Even worse, the grounds by which
other individuals are excluded from participating in the determination of
the universal are also precisely the reasons by which each individual can
claim to have a right to be the head of the government. Thus, the govern-
ment must necessarily and automatically be seen by the other individuals
as a faction. The other individuals, in turn, must be seen by the head of the
government as a necessary threat to his claim to being the universal (Ibid.,
604–605).
The problem can be formulated as follows, as the effectiveness of the
universal requires that the universal be tied to an individual, participation
in the universal by other individuals requires that all these individuals ad-
here to a theory of mediation between individual and universal. One cru-
cial element of such a theory is that it imposes a distance between the uni-
versal and the individual who happens to represent the universal, and that
is precisely what Rousseau’s direct democracy lacks.
30 2. Economics and Politics in the Architectonic of Hegel’s Thought

II. Rejection of Universal Suffrage

In his Philosophy of Right, Hegel rejects universal suffrage as a satisfac-

tory mediation between the universal and the individual. The abstract rea-
son for this rejection is that the individual remains an individual even when
performing this act of universal significance, i.e., casting his vote.
Hegel's abstract argument can be supported by two more concrete ar-
guments. First, universal suffrage must be inefficient in large countries,
since the influence of the individual performing the act by which the uni-
versal is determined remains an individual. Thus, the act pertaining to the
universal, e.g., voting, must have meaning for the individual who performs
this act. This is clearly not the case in universal suffrage in large countries.
The act of casting one's vote is likely to makes no difference in the out-
come of large elections. Indeed, one’s vote makes a difference only if all
the other votes end up in a tie. Thus, an individual might be rational in not
going to the ballot box.12
Second, universal suffrage does not guarantee proportional representa-
tion of the different spheres of interests in parliament. Thus, participating
in universal suffrage might legitimize a parliament – the instrument of the
universal – which does not fairly represent the different spheres of inter-
ests. Universal suffrage is thereby reduced to a formal ritual that produces
a formal legitimation of the universal without guaranteeing that the univer-
sal is tied to the individual as an individual. Such a universal is, for Hegel,
a farce, and such a legitimacy is but an abstract legitimacy.
Thus, Hegel's rejection of universal suffrage rests, first, on his insistence
that the individual have an effective and guaranteed interest in participat-
ing in the universal, and, second, on his further insistence that any ar-
rangement which is not able to guarantee that, structurally, the interests of
all individuals will be fairly considered is unacceptable.
The Rousseau-ian governmental theory is rejected because it forgets
that the universal agent is an individual, and thus, excludes other individu-
als. Universal suffrage is rejected because even the voting citizen remains
an individual and might find it in his interest as a individual not to partici-
pate in the universal or, worse, to sell his vote. Therefore, the universal
becomes a farce.

12
PR, comment to # 311, 202–203. This passage in Hegel has drawn enthusiastic attention
from public choice theoreticians (Buchanan 1974, 99–101).
 III. Hegel’s Own Solution 31

III. Hegel's Own Solution

Hegel's solution must be built on mediation, since his rejection of other so-
lutions rests upon their lack of mediation between individual and universal
so that the individual who incarnates the universal leaves no place for other
individuals, this danger becomes obvious when this individual takes care
of his own interests under the cloak of the universal. The second danger is
that the individual is given such an insignificant participation in the uni-
versal that the individual does not bother to participate, and he, thereby,
becomes a mere individual and the universal an empty universal. Hegel's
solution – even if it may not be acceptable for practical or theoretical rea-
sons – addresses both problems.

A. The Individual Representing the Universal

In his political theory, Hegel makes sure that he does not restrict the bene-
fits of the universal to one individual. He does so by limiting the function
of the individual representing the universal. Indeed, the king is almost a
figurehead, someone who is allowed to put the dots on the “i's” (Ibid., ad-
dition to # 280, 289).
Furthermore, Hegel subscribes to the theory of separation of powers.
He would divide the functions of the state between the legislature, the ex-
ecutive, and the crown (Ibid.,# 273). This is an institutional guarantee
against total identification of one individual with the universal.
Third, the executive itself is restricted by the imposition upon govern-
ment employees of a hierarchal structure of answerability and, more im-
portantly, by the barriers erected to protect lower societal units, e.g., corpo-
rations, associations, from interference by the executive (Ibid., # 295).
Fourth, the legislature, too, is restricted and made answerable. Indeed,
the legislature is to be composed of representatives of the different estates
(the word used by Hegel for interest group being “estates”) (Ibid., ## 301–
302). These representatives must mediate the interests of their interest
group with the representatives of other interest groups.
Finally, Hegel restricts even the domain of the universal itself, i.e. the
rights of the state. This restriction occurs in two directions. First, it occurs
by the affirmation that the state is transcended by art, religion, and phi-
losophy. These are all values which require freedom of thought and ex-
32 2. Economics and Politics in the Architectonic of Hegel’s Thought

pression for the individual.13 A second restriction of the state occurs in the
objective domain of spirit itself. Hegel remarks that the freedom of the in-
dividual within the state is ultimately not guaranteed institutionally if the
economic order14 does not contain economic centers of decisions inde-
pendent of the state. Thus, a form of free market economy is here seen to
be the long-term institutional guarantor of the freedom of the individual.15

B. The Universal Made Available to the Individual

Hegel defends a second form of mediation between the individual and the
universal. This second argument is built upon Hegel's insight that the uni-
versal can be reached in degrees. Reaching the universal is for the individ-
ual not an all or nothing proposition. The economic order is credited by
Hegel for providing several levels of universality to an individual. The
economic order creates the possibility of reaching a minimal form of uni-
versality to those individuals who do not participate directly in the univer-
sality of the state. Furthermore, the economic order educates all participat-
ing individuals in the direction of universality, as will be seen in the
analysis of the different levels of universality offered by the economic or-
der.
The first and best-known form of universality connected with the eco-
nomic order is the universality that an individual gives himself through his
work. This idea is already present in the Phenomenology's analysis of the
slave and stoicism. The universality produced in work is a dual one. It is
the objectivity of the result of my work – remember Horace saying about
his poems, “Exegi monumentum aere perennius.”16 It is also the objectiv-

13
This kind of limitation of the function of the state is made quite explicitly in Hegel's En-
cyclopedia, where the state is said to be transcended by absolute Spirit, which includes art,
religion, and philosophy.
14
Hegel’s term is “civil society” and, thus, suggests that the economic order includes, be-
sides contractual exchanges, also institutional arrangements. In this chapter I will continue
to use the expression “economic order” where Hegel uses the term “civil society” because
the weight of my analysis consists in understanding what the specific contribution of the
economic order is for Hegel’s theory of modern freedom.
15
“If the state is represented as a unity of different persons ... then what is really meant is
only civil society ... In civil society each member is his own end, everything else is nothing
to him” (addition to #182). See also Hegel's criticism of Plato's conception of the state in
#185.
16
“I erected a monument that is more durable than bronze” (Horace, Carm. 3, 30, 1). The
monument to which Horace is referring is his poetry. This aspect of work is referred to in
Hegel (Hegel 1967 c, 238; See also, Smith, 14).
 III. Hegel’s Own Solution 33

ity of the skills connected with producing these works (poems made
Horace a poet for the Roman community) (PR, ## 187 & 197).
The second form of universality offered by the economic order is the
one achieved by an individual when he participates, through his labor, in
the system of social needs (PR, # 182). Thus, in order to satisfy his own
needs, he is willing to produce what is demanded by others. This idea
comes from the economists of Hegel's time. Among economists it is often
referred to as the theory of “the invisible hand” (Smith 1937, 423). Again,
there are two aspects to this form of universality. The first is the guaran-
teed production of those goods that are demanded by the individuals.17
The second is the willingness of the individual to choose a kind of work, to
acquire a skill that is socially demanded. Thus, the individual ties himself
actively to, or accepts passively, that he is tied to the vicissitudes of the
economic order (Ibid., # 200).
The third form of universality offered by the economic order is the one
which results from the insertion of the individual into a subgroup of the
economic order. Hegel discovers this form of universality in different
places. He discovers it when he talks about professional groupings, corpo-
rations, and pressure groups.18 He naturally talks about them in his own
terminology, but this does not alter the substance of the argument.
A professional group, a corporation, or a pressure group provides an in-
dividual universal that an individual can identify with and work for (PR ##
206, 207, and additions to ## 201, 206, 207). In the case of professional
groups, Hegel distinguishes between the agricultural, commercial, and bu-
reaucratic professions. Each has its own difficulties, rewards, aspirations,
and virtues. It is the acquisition of the special skills and virtues needed to
overcome the difficulties related to the individual profession which is the
measuring rod of social recognition. It is the capability of the individual to
be content with the recognition and rewards of the chosen profession
which transforms the individual into a universal. Instead of Mister X, one
is now either a farmer, merchant, or government official.
A similar argument is developed by Hegel for the case of an individual
willing and capable of identifying with his corporation or union. Indeed,
Hegel talks about the place where one earns one's income, and about the
guild (PR ## 251, 253, and addition to # 255)

17
Ibid., # 199, the idea of a “universal permanent capital.”
18
The words used by Hegel are, “Korporation” and “Stand.” For an analysis of the func-
tion of the corporation in Hegel’s system, see Smith 1989, 140 ff.
34 2. Economics and Politics in the Architectonic of Hegel’s Thought

C. The Transition from Economics to the State

The previous forms of universality present cases where the individual in-
serts himself into the universal. Hegel also mentions, however, two cases
where the universal is imposed upon the individual, yet the imposition is
justified, not by the requirement of the universal but by the self-interest of
the individual. These two cases are the judicial system and the police.
The individual in the economic order has the will to acquire the goods
he needs through his participation in the economic order. This requires the
protection of the goods he acquires against claims of others. This is what
the judicial system does (Ibid., ## 209, 230).
The term “police” has for Hegel a broader meaning than it has today.
Hegel’s definition covers law enforcement, the production of public goods,
and the provision of welfare and could thus be well translated as “public
authority.” The general argument used by Hegel is that some acts of indi-
viduals have influence upon other individuals. This can be good or bad.
The police have a right and duty to restrain individual acts which harm
other individuals too much, intentionally or accidentally. The exact de-
lineation of legitimate police interference is a matter that cannot be deter-
mined philosophically, according to Hegel.
Similarly, those goods that benefit many individuals or that are neces-
sary for the private activity of individuals should be made available
whether or not individuals have a private incentive to provide them. If pri-
vate incentive is failing, the police should provide it, according to Hegel
(PR addition to # 236). This argument is similar to the justification pro-
vided by economists for governmental provision of public goods
(Samuelson 1955).19

19
The problem of public goods as it relates to Hegel is taken up in chapter 3; and as it re-
lates to the science of economic, it is taken up in chapter 6.
 Conclusion 35

Conclusion

The economic order provides Hegel20 an opportunity to find a solution to

the political problem of reconciling the individual with the universal, with-
out having to adhere to utopian political ideals.21 The full articulation of
that solution will require an in-depth analysis of the structural arguments
offered in the Philosophy of Right, from which I borrowed the ideas to
sketch the Hegelian solution. This is the purpose of the next chapter.

20
An economist, David Levine, credits Hegel as being the first to reflect systematically on
the idea that economics is a “separate and notable realm” in society (Levine 1995, 12).
21
One should notice that Rousseau's ideas are more complex than Hegel makes us believe.
Indeed, Rousseau allows for a legislator—a man of genius—who is able to see what is in
the public interest and who, also, is able to suppress his own self-interests. But as Lionel
Gossman argues (Gossman 1961), Rousseau involves himself in a contradiction. He holds
that, on the one hand, the people have the fundamental right to legislate by enacting the
laws proposed by the legislator. On the other hand, the legislator was needed because
Rousseau believes that the people—a blind multitude—were unable to discern what is best
for the public interest. How is this ignorance lifted by the legislator? Thus, Hegel's basic
objection to Rousseau remains valid. (This note was suggested by W. Desan and R. Pa-
rise).
 Section II

Hegel and Political Economy

3. The Ethical Function of the Economy

Abstract

Hegel tried to understand the new economic order that had emerged after
the feudal, the mercantilist, and the physiocratic systems. That new order
became known as the free-market economy. Helped by his reading of the
Scottish economists, Hegel demonstrated a sophisticated understanding of
the connection between the new economic order and the aspirations to
freedom in the Western tradition.22
The question as to what the relation is between economics and freedom
focuses on the most relevant philosophical question one could ask about
Hegel's understanding of the economy. Hegel understood history as the at-
tempt to create the institutions that can protect and provide freedom for
people living together as bodily subjects—that is, as subjects who have a
consciousness, but also, as subjects who have humble needs imposed by
the fact that their consciousness is embodied. Hegel's most extensive and
systematic treatment of the economic order is presented in his Philosophy
of Right. Hegel calls a right the objective realization of freedom (Hegel
1967 a, # 29). By including his discussion of the economic order as a ma-
jor section in the Philosophy of Right, it is legitimate to suppose that Hegel

22
Some publications that elucidate the depth and sophistication of Hegel's analysis of the
new economic order are, Angehrn 1977, 226-240; Avineri 1974, esp. chs.5, 7; Chamley
1963; Cullen 1979; Denis 1984, 7–36, 51–90, 153–162; Dubouchet 1995; Dudley 1997,
47–59; Fleischmann 1964, 207–254; Harada 1989, 110–167; Hardimon 1994, 189–205;
Henrich & Horstmann 1982, 132–138 ; Jarczyk & Labarrière 1986, esp. 229–246; Jermann
1987, 166–182; Kainz 1974, 32–43; Kraus 1931/1932, 9–34; Lucas & Pöggeler 1986, 149–
174; Lukacs 1973, chs.2:5 and 3:5,6,7; Maker 1987; Marx 1977, esp. intro.,ix–lxiii;
Pelczynski 1984; Priddat 1990; Reyburn 1967, 214–225; Riedel 1975, esp. Vol. II, 247–
337; Roth 1989, 144–183, 221–223, 257–259; Smith 1989 esp.140–145; Steinberger 1988,
199–203, 232–34; Waszek 1988, 142–228; Whitebook 1978, 136–205 ; Winfield 1988, esp.
chs 12–14; Winfield 1990, esp. Part II; Wood 1990, 237–255. In his classic History of Eco-
nomic Analysis, Schumpeter refers seven times to Hegel, including four pages where he de-
scribes German philosophy as part of the intellectual scenery for the crucial period in the
development of economic thought from 1790 to 1870 (411–415). Ludwig von Mises, on
the other hand, belittles Hegel for his “dialectic mysticism” and for inspiring the Marx and
his mistaken doctrine (Mises 1963, 74).
40 3. The Ethical Function of the Economy

wanted to analyze the economic order (the free market) as an embodiment

of freedom.23 In this chapter I will first analyze Hegel's concept of free-
dom. Second, I will present Hegel’s arguments that can be construed as
being in favor of the free market. Finally, I will study what Hegel sees as
the proper relation between the state and the free market.

I. Hegel’s Concept of Freedom

Typical of Hegel's treatment of freedom is his determination to see it as

concrete and positive.24 By trying to define freedom in this way, Hegel
discovers a paradox. Freedom is free will. Human will, however, is the
will of a self-consciousness. Hegel defined a self-consciousness in his
Phenomenology of Mind as follows:

Self-consciousness is primarily simple existence for self, self-identity by ex-

clusion of every other from itself...That which for it is other stands as unes-
sential object, as object with the impress and character of negation. (Hegel
1967 c, 231)

The idea that the will of a self-consciousness is negativity because it is

exclusion of anything objective is repeated in the introduction to the Phi-
losophy of Right. There, Hegel gives several descriptions of this aspect of
the will. He writes, “the will contains the element of pure indeterminacy
or that pure reflection of the ego into itself.” In more concrete terms,
Hegel writes that this pure indeterminacy means “the dissipation of every
restriction and every content either immediately presented by nature, by
needs, drives, and impulses, or given and determined by any means what-
ever.” In the same place Hegel describes this aspect of the will more ab-
stractly as “the unrestricted infinity of absolute abstraction or universality,
the pure thought of oneself” (PR, # 5).
This aspect of the will is responsible for the misidentification of free-
dom as negative freedom, and for the misguided feeling that acts of de-
struction are means to affirm the self (Ibid., # 5 remark).
However, a will that restricts itself to the moment of negation, dissipa-
tion, or indeterminacy, lacks the moment of self-determination. The will
must therefore be “the dissipation of restriction” and “the positing of a de-
terminacy as a content and object” (Ibid., # 6). This is the paradox of the

23
Hegel talks about more than economics since he uses the term “bürgerliche Gesell-
schaft,” translated into English as “civil society.”
24
For a book-length treatment of this problem, see Seeberger 1961.
 I. Hegel’s Concept of Freedom 41

will and freedom. Hegel tries to find a solution for this paradox by search-
ing for an object of the will that is, at the same time, also the dissipation of
the restriction of the will. Such a will Hegel would call a will that deter-
mines itself (Ibid., # 7 remark). To find such a will, Hegel analyzes differ-
ent types of wills, and demonstrates their deficiency. Thus, he analyzes
the immediate or natural will, the arbitrary will, and the eudaemonic will.
The immediate or natural will is a will that accepts as object immedi-
ately existing things such as impulses, desires, and inclinations. The prac-
tical problem with this kind of will is that it has before itself a “multiplicity
of impulses, each of which...exists alongside other desires...and each of
which is...aimed at all kinds of objects and satiable in all kinds of ways”
(Ibid., # 12). The philosophic problem with this will, according to Hegel,
is that it is not a will that wills itself as he sees the ideal will. This natural
will accepts something other than itself (its impulses and drives) as its ob-
ject. It thereby calls them “its impulses, its desires,” but this relation hides
the fact that there is no obvious rationality (or necessity) in accepting par-
ticular impulses or desires as objects of the will.
That lack of necessity is obvious in the fact that some desires are ac-
cepted and acceptable, whereas others are not accepted, and might not be
acceptable. One might wish to have a drink or an airplane, or one might
wish to kick someone. The natural or immediate will cannot distinguish
between the rational acceptability of these different wishes because it ac-
cepts impulses, desires, and inclinations immediately25 as motive for the
will.
The arbitrary will26 realizes the problem faced by the immediate will
and overcomes these problems inasmuch as it accepts the necessity of the
will to choose and decide. The will must choose and decide because the
natural will faces a twofold indeterminacy; that is, which of the many im-
pulses should be followed, and which object should be chosen to satisfy
the chosen impulse. However, the freedom achieved by an arbitrary will is
but limited freedom. It is a choice made by the will which maintains its
distance from any content it decides to will. It wills a particular content

25
In his philosophy, Hegel demonstrates that a solution to a problem using an immediate
given will always be defective. A true solution will need to be mediated. That mediation
will always involve a dialogue with what Hegel calls the universal. Hence, Hegel proceeds
to show the deficiencies of the immediate will.
26
The arbitrary will is the will which accepts that a proper will has to accept the duty that it
must decide. It is called an arbitrary will because such a will does not yet require that its
decisions must also be guided by principles. I found an example of such a will in the testi-
mony of a successful businessman answering my question during a cocktail party as to
what the most important characteristic was of a successful businessman. He answered: “A
successful businessman must be able to make decisions. He can be wrong, but he cannot
not decide, because otherwise thousands of people do not know what to do.”
42 3. The Ethical Function of the Economy

with the proviso that it could have refused to will this particular content
because as arbitrary will it has the absolute right to decide what it alone
wants to decide.
The object of an arbitrary will has so little necessity that Hegel can
point to two contradictory positions in the history of thought concerning
the proper relation between the will and, for instance, the impulses of hu-
man nature. One tradition holds that the impulses of human nature are on-
tologically good, and that corruption of human nature is the result of social
influences. Within that tradition, an argument can be made that a human
being should follow his natural impulses. This tradition was exemplified
by Rousseau. Another tradition holds that the impulses of human nature
are ontologically bad. In that tradition, an argument is made that a human
being should distance himself from his natural impulses. These impulses
should be controlled, educated, refined, or sublimated. The ontological
view of this tradition's understanding of human nature is expressed by the
concept of original sin.
Hegel's reference to the history of thought, thus, makes the point that
the arbitrary will has respectable arguments for two contradictory attitudes
towards possible objects of its will. The arbitrary will can only, therefore,
be arbitrary; it has no full mastery of itself in the selection of an object of
its volition (Ibid., # 18). However, there is progress in the transition from
natural will to arbitrary will. The arbitrary will knows the truth about the
natural will. Indeed, the natural will thought that it could describe its ac-
tion as follows: follow your desires, your impulses. Actually, the natural
will could not just follow its impulses; it has to choose between different
impulses; it has to choose between different objects that could satisfy the
chosen impulse. Thus, the natural will did more than it thought it was do-
ing. Without thinking that it has to do so, the natural will has to choose.
The arbitrary will knows it has to choose; it even conceives choice as its
essence and its privilege.
The arbitrary will, however, has its own limitation that is addressed by
the eudaemonic will. The eudaemonic will is one that must decide, one
that must choose. However, this will knows that it cannot just decide on
arbitrary grounds. Whatever the shortcomings of the criterion of happi-
ness, the eudaemonic will accepts that it needs a criterion to decide, and
that it needs to think constantly about how a particular object relates to the
general criterion. Thus, the eudaemonic will introduces thought as a cru-
cial dimension for the freedom of the will. Furthermore, the successful in-
fluence of thought on the decision-making process of the will requires an
emotional maturation process. Hegel is aware of this requirement when he
mentions that the eudaemonic will implies purification of the impulses.
This concept of purification also allows us to see how the eudaemonic will
 I. Hegel’s Concept of Freedom 43

synthesizes the contradictory extremes into which the arbitrary will can
develop. The arbitrary will can accept impulses as good, or can reject
them as bad. The eudaemonic will does both by accepting the impulses af-
ter their purification. As purified, the impulses are thus considered good.
Yet the impulses are seen to be in need of purification; without this purifi-
cation, the impulses are seen as bad.
However free the eudaemonic will may be, it is not fully free because its
purpose is a subjective experience – that is, a personal experience of hap-
piness. Indeed, the experience of feeling happy is an event that is willed
by the eudaemonic will as a result of its acts. But the will cannot guaran-
tee this result; it can only hope that the feelings of happiness will accom-
pany, or follow, the acts of the will.27 Thus, the eudaemonic will wants
something that is not in its power to will. Such a will makes itself, by
definition, a dependent will rather than an autonomous will.
There is, however, an essential truth in the eudaemonic will. The eu-
daemonic will wants to think the relation between, on the one hand, a con-
crete object of the will, and, on the other hand, the universal that is the
proper object of the will. The eudaemonic will, however, takes as point of
comparison not a real universal but a contingent universal – i.e., happiness.
The solution to the limitation of freedom of the eudaemonic will is for a
human being to create his existence by means of thought in order to be
able to present to the will a real universal.
The history of philosophy is in agreement with this general line of
Hegel's thinking. To be free requires that the will be given the proper ob-
ject. This proper object has been identified, among others, as the unmoved
mover, the Platonic ideas, happiness, or the contemplation of God. In each
case identification of the proper object of the will requires thought. Thus,
we should have no great difficulty in understanding and accepting Hegel’s
crucial thesis about the will and its relation to thinking: “it becomes clear
that it is only as thinking intelligence that the will is genuinely a will and
free” (PR, # 21 remark). Or, “true liberty ... consists in the will finding its
purpose in a universal content, not in subjective or selfish interest. But
such a content is only possible in thought and through thought” (PM, #
469).
Typical for Hegel, and thus less self-evident, is what he thinks thought
must present as the true object of the will. For him, the proper object of

27
In the Philosophy of Mind, Hegel formulates this as follows: “Happiness is ... that which
only ought to be”(# 480). The implication is that what ought to be does not necessarily re-
alize itself. Also, Hegel calls happiness a feeling (Ibid., # 479). And he defines feelings as
contingent (zufällig) (e.g., ibid., # 447 and # 471). (Hegel’s Philosophy of Mind is subse-
quently cited as PM followed by paragraph numbers.)
44 3. The Ethical Function of the Economy

the will is none of the objects mentioned above. It is, rather, the absolute
universal, the rational (PR, # 24 remark). Or, it is the “principle of right,
morality and all ethical life” (Ibid., # 21 remark). What Hegel, therefore,
has in mind as the proper object of the will is not something outer-worldly
but rather some form of being-in-the-world.
But how can we understand that the will is free if it has as its object “the
principle of right, morality and ethical life”? We can find help in another
quotation from Hegel:

The absolute goal, or, the absolute impulse, of free mind is to make its free-
dom its object, i.e., to make freedom objective as much in the sense that
freedom shall be the rational system of mind, as in the sense that freedom
shall be the world of its immediate actuality. In making freedom its object,
mind's purpose is to be explicitly, as Idea, what the will is implicitly. The
definition of the concept of the will in abstraction from the Idea of the will
is 'the free will which wills the free will.’ (Ibid., #27 remark)

The proper object of the will is, thus, to will freedom to be objective.
More specifically, the proper role of the will is to will the embodiment of
freedom. But in human society we find many forms of embodiments of
freedom, including the constitution, prisons that protect us from criminals,
and life-long tenure for judges and academics. Clearly, this enumeration is
not complete and does not pretend to have a logic in its ordering. Hegel
helps us by giving his own ordered enumeration. He orders all embodi-
ments of freedom under three headings – the principle of right, morality,
and ethical life – thereby reaffirming the enterprise of the Philosophy of
Right. In that book, he writes, “An existent of any sort embodying free
will, this is what right is” (Ibid., # 29). Thus, the Philosophy of Right is
not just about the philosophy of law, it is about rights. In it, Hegel dis-
cusses abstract right, morality, and ethics; these are precisely the three em-
bodiments of freedom that he also enumerates as the proper object of the
free will. His claim that the proper object of free will is the principle of
right, morality, and ethical life is thus backed by the structure of the whole
book. Let us now analyze in what specific sense the will must will these
objects so as to be free.
One finds a somewhat difficult summary defense of this thesis at the
end of the introduction to the Philosophy of Right (Ibid., # 33). There, ab-
stract right is presented as the expression of the immediate will, morality
as the expression of a will reflected into itself, and ethics as the synthesis
of these two important expressions of the will. Like many of Hegel's
dense statements, this one does not help us very much either, except that
from it we can see that Hegel might claim some form of dialectical com-
pleteness in his list of objects of the free will.
 I. Hegel’s Concept of Freedom 45

Abstract right is the immediate relation of the will to external things. It

has its origin in a basic assumption of Hegel's philosophy: that the truth of
subjectivity is Entäusserung (going outside itself). This Hegelian principle
has its metaphysical roots in Hegel's understanding of history as the self-
realization of the Trinity. In his vision, even God must come out of him-
self into history in order to realize himself. That principle can also be
given a more easily accessible explanation: a subject can have many aspi-
rations. Aspirations, however, are just aspirations. They need to be real-
ized in order to become something more. Abstract right deals with the
problems related to the first externalization of free will: property. In
property, says Hegel, my free will becomes an object to my self (Ibid., ##
45–46). In willing abstract right, I therefore will property, which in turn
means that I will the externalization of my freedom. This becomes obvi-
ous in contracts, which are an implication of property rights. In a contract,
two parties demonstrate their power or their freedom over things in that
they can decide, or refuse to decide, to exchange specific objects – for ex-
ample, a house for two hundred thousand dollars. If the decision is posi-
tive, then a new owner moves into the house. He might like new wallpa-
per, even a new kitchen. If the decision is negative, the house might
remain as it has been for several years. The seller, in selling his house,
must accept the freedom of the buyer to change the house as he sees fit.
However, abstract right is but the realization of a limited form of free-
dom. Indeed, the right to property cannot be fully guaranteed. Criminals
can steal, maim, and kill. Revenge is possible, but it is only a meager form
of help. Indeed, revenge cannot always return what was taken, or undo
what was done. Furthermore, revenge is a private act and, as such, it is
wrong (Ibid., # 102).28 Crime and revenge reveal the shortcomings of ab-
stract right. The possibility of crime shows that abstract right does not take
full account of particularity. Particularity then emerges as crime. The res-
toration of the universal by means of revenge in turn is deficient. Indeed,
it is one person making another person respect the universal by imposing a
privately determined punishment. What is lacking in abstract right is a
proper relation between the universal and the particular. The person seek-
ing revenge and the criminals are both antagonists. The former claims that

28
A private act of revenge is not marked by the limits required by what Hegel calls the uni-
versal. In this case the universal requires that justice be restored. From the injured party it
requires, among others, that they be satisfied with proportional punishment (the theft of a
cow does not justify murdering the whole village of the thief). From the injuring party it
requires that they can see the punishment as restitution of justice rather than as devious en-
richment by the injured party. Dealing justly with crime will thus require that both the in-
jured and the injuring party can move away from the private position of looking to private
gains. Hegel points out that this came about historically if a community was able to intro-
duce effectively the figure of the judge in order to deal with crimes.
46 3. The Ethical Function of the Economy

abstract right provides the right to punish the criminal. But, the criminal
does not recognize the right of abstract right. The solution can only come
from a personal recognition of what abstract right stands for. In other
words, the solution can only come in a recognition that the universal has a
claim upon the individual or, again, that the fight emanating from abstract
right becomes a right recognized by individuals (Ibid., # 104, and 332–334
translator's notes). Hegel sees this process as brought about by the labor of
the individual. This labor he calls reflection.29 An individual with such a
commitment to the universal Hegel calls a (moral) subject.30
Morality is a higher form of freedom than the freedom embodied in
property rights.31 It is a higher form of freedom because property rights
require an external enforcement (punishment, revenge) whereas morality is
a commitment by the individual himself or, as Hegel says, morality is a
“self-determination” (Ibid., # 104 and # 107). Hegel clarifies the difficult
characterization of morality in his introduction to the Philosophy of Right.
Morality is described there as the will, “reflected from its external em-
bodiment into itself” (Ibid., # 33). We now understand this to mean that
morality, compared with abstract right (this being an external embodiment
of freedom as Hegel characterizes, for instance, property rights), involves
an act of the individual that abstract right does not require – that is, a per-
sonal commitment to something (the good) that transcends the individual,
rather than simply taking, using, and enjoying a transcendent object (prop-
erty). Because the essence of morality is a personal commitment, or as the
translator of the Philosophy of Right, T. M. Knox, calls it, “inner convic-
tion,” (Ibid., # 334 translator's notes) the moral point of view can be called
a reflection of the will upon itself. It is this moment requiring an act of
commitment from the will that Hegel calls subjectivity. He writes that it
establishes the (free) will “as explicitly identical with the principle of the
will”(Ibid., # 106, # 108 remark). Whatever the relation is between free-
dom and economics, we will therefore have to remind ourselves that the
self determination of the will, the principle of subjectivity, will have to be
respected in economics if the form of freedom reached in the moral point
of view is not to be undone.32

29
“reflected from” (Ibid., # 33); “as reflected in upon itself and self-identical”(Ibid., # 104,
remark, # 105; PM, # 503).
30
PR, # 33; “subjective individuality”; the identity between the moral point of view and
subjectivity is stressed both in the main text and in the remark (Ibid., ## 104–5; PM, # 503).
31
PR, # 106; ibid., # 33 and # 104 remark; see also Knox's comment in the transla-
tor's notes, 334.
32
This idea has been defended also by some important economists such as Smith, Hayek,
Mises and Friedman.
 I. Hegel’s Concept of Freedom 47

Even though Hegel stresses that morality is a higher point of view than
that of the legal order, he states, as well, that the moral point of view is a
one-sided view of the will. The one-sidedness derives from the fact that it
requires a commitment of the individual to the good as that individual sees
it (Ibid., ## 131–132). Such a point of view allows an individual to be
wrong in what she thinks to be the good. In order to avoid this pitfall,
Hegel claims, very logically, that the moral point of view needs guidance,
and that guidance is provided by ethical institutions. These institutions re-
quire subjective commitments just as the moral point of view does. A sub-
jective commitment to an ethical institution is, however, more than a mere
moral commitment – it is a subjective commitment to institutional ar-
rangements. The good to which one commits oneself is thus specified, but
the specifications of ethical life have changed over time. In the Phenome-
nology, Hegel analyzes the specification of ethical life in Greece, in the
Roman Empire, during the time of Charlemagne, that of Louis XIV, and
the period around the French Revolution (Hegel 1967 c, 455–679). The
family and the state are already recognized as ethical institutions in Greek
antiquity. In his analysis of the culture of Charlemagne and Louis XIV,
Hegel discovers economics as a crucial variable that plays havoc with the
self-understanding of political figures. In his Philosophy of Right, Hegel
gives a dialectical argument for all three ethical institutions – the family,
the economic order, and the state (PR, # 33 and # 157).
To better understand Hegel's argument for his three ethical institutions,
let us ponder once more what ethical life is for him. Hegel claims that
ethical life is a union of objective customs, laws, or institutions, and indi-
viduals who see in these objective customs, laws, or institutions, the reali-
zation of their own essence (Ibid., ## 141–142, translator's notes 319; PM,
# 514). Hegel's argument for his three ethical institutions, therefore, needs
to demonstrate that each one of them is in some sense a self-realization of
the individual. In the first ethical institution, the family, an individual real-
izes him or herself in an immediate way. Through the feeling of love and
the unity created in marriage, the basis for the family, an individual finds
purpose in her own life (PR, # 158). In the second institution, the economic
order, the individual is left to herself to work for the satisfaction of her
own needs. This private economic activity, though, is part of a whole that
generally realizes itself without conscious attention by any particular indi-
vidual. It is the whole (the GNP, or the gross national product, in modern
terminology) which is the guarantee for the satisfaction of one's needs.
Thus, obtaining a legitimate share of the GNP becomes one's purpose,
given that one knows oneself to have needs and desires.
Given that the economic order realizes a unity that is not aimed at con-
sciously, it is evident that the economic order will experience contingent
48 3. The Ethical Function of the Economy

developments that might be desirable or that might be undesirable. An

economic subject is therefore not a fully autonomous subject. That full
autonomy becomes possible only in the third ethical institution, the state
(Ibid., ## 257–258, 260). Indeed, it is within the state that a human being
discusses, agrees, and consciously realizes the rules by which he wants to
organize his life in a community of human beings. These rules will have
to promote the two other ethical institutions, the family and the economic
order.
In this section of his book, Hegel teaches us that there is a systematic
connection between freedom and economics. This connection can be for-
mulated as follows: freedom is ultimately realized by the individual's in-
sertion into the ethical institutions. One of these ethical institutions is the
economic domain.
We also hit upon an idea that promises to be crucial when we have to
determine, not whether the economic domain has a relation with freedom,
but what kind of economic order is dictated by its relation to freedom. The
idea is the following: the connection between freedom and the economic
order is that freedom is realized in ethical institutions of which the eco-
nomic domain is one. Furthermore, ethical institutions are the realization
of freedom because of the deficiency of the moral point of view. Never-
theless, the moral point of view is an essential element of ethical life. One
thing typical of the moral life preserved in the ethical world is the principle
of subjectivity: the fact that the will wills itself as doing the good. This
willing of itself according to Hegel is “the real aspect of the concept of
freedom” (Ibid., # 106 remark). If this principle is applied to the ethical
institution of the economic order, we must presuppose that the free market
is the appropriate ordering of the economic order because it is an ordering
that allows individuals to decide as they please. In the next section of this
chapter, I will look for specific Hegelian arguments to demonstrate this
thesis. One should notice, however, that the principle of subjectivity in-
cludes the intent of doing the good. The economic order must therefore in-
tend to achieve the common good that it is supposed to achieve. Hegel
will use this aspect of the principle of subjectivity to articulate an appro-
priate relation between economics and the state as he sees it. This will be
the subject of the third, and last, section of this chapter. I now turn to ar-
guments found in Hegel’s writings which can be construed as demanding
some form of free market economic system.
 II. Hegel’s Arguments in Favor of a Free Market 49

II. Hegel’s Arguments in Favor of a Free Market

Hegel offers five different arguments that can be used to defend the free
market as opposed to an economic system that would be fully subordinate
to the political order. Hegel's first argument derives from his view of the
economic order as an ethical system. As such, the economic order must
incorporate the basic principle of morality as he understands it; that is, sub-
jectivity, or free, self-determination. His second argument relates to his
thought that the achievement of modern times was the recognition of the
principle of subjectivity. In philosophy, that principle was introduced by
Descartes. In religion, Luther introduced the same principle. The intro-
duction of that same principle in economics, according to Hegel, accounts
for the success of the new economic order. Hegel takes this success to be a
proof for the truth of the principle of subjectivity. His third argument in
favor of the free market derives from his understanding of the nature of la-
bor. Hegel believes that there is an alienating dimension in labor. He be-
lieves that only free labor permits consciousness to give meaning to the
alienating aspect of labor. His fourth argument is based on his hope that
the free market, combined with a constitutional monarchy, might be able to
provide a happy structural equilibrium for modern human beings who are
torn between the contradictory requirements of self-interest and civic duty.
His fifth argument is related to his correctly having perceived a problem
between the rights of the state and the moral demands of the citizen. I will
argue that dealing with this problem introduces a new argument for the
free market. Let us develop these arguments separately.
The economic order is not, for Hegel, a morally neutral order: it is an
ethical institution. It is not a natural system, as Adam Smith argued in his
classic statement, “All systems of preference or of restraint, therefore, be-
ing thus completely taken away, the obvious and simple system of natural
liberty establishes itself of its own accord.”33
Hegel's understanding of the economic order as an ethical institution
commits him to making a requirement that he must make of any ethical in-
stitution: each of the ethical institutions must realize the essential truth of
the moral life that it is supposed to supplement. The truth of moral life is
that the will intends to transcend its particularity and intends, instead, to do
what is good. The right is that it be judged according to the knowledge
and understanding it had of the worthiness or evil character of its deed.
The moral will is thus a will that has the right to act as it thinks it must act.

33
In the next chapter, I explicitly I argue against this ontology of the economic order using
the writings of a group of economists such as Walter Eucken, Friedrich A. Hayek, and
Henry C. Simons. See also Briefs 1957 a; Briefs 1983, 271–299.
50 3. The Ethical Function of the Economy

The moral will is a self-determining will, which is what the modern princi-
ple of subjectivity is about (PR, ## 104, 132, 152).
The truth of the moral life – that is, the right to self-determination, com-
bined with the duty to do the good – indeed, is given a crucial role by
Hegel in determining the righteousness of marriage as “the free consent of
persons ... to make themselves one person” (Ibid., # 162). In a more rhe-
torical passage, Hegel even calls it “the free surrender by both” (Ibid., #
168).
Similarly, Hegel defines the ethical character of the state by the dual as-
pect of free consent and free consent to a perceived transcendent good.
Thus he writes:

The state is the actuality of concrete freedom. But concrete freedom con-
sists in this, that personal individuality and its particular interests not only
achieve their complete development and gain explicit recognition for their
right ... but, for one thing, they also pass over of their own accord into the
interest of the universal, and, for another thing, they know and will their
universal; they even recognize it as their own substantive mind; they take it
as their end and aim and are active in its pursuit. (Ibid., # 260)

In the same way, Hegel argues that for the economic order to be an ethi-
cal institution, it must respect the principle of subjectivity. However, the
economic order, organized as a free market, permits its members to will
consciously only one of two requirements of subjectivity. Indeed, “homo
economicus” is permitted to will only his interest; as Adam Smith wrote:

Every man, as long as he does not violate the laws of justice, is left perfectly
free to pursue his own interest in his own way, and to bring both his industry
and capital into competition with those of any other man, or order of men.
(Smith, 651)

The other principle of subjectivity, that the individual wills freely some-
thing of universal value, is only guaranteed indirectly. Again, let us quote
Smith:

He [every individual] generally, indeed, neither intends to promote the pub-

lic interest, nor knows how much he is promoting it ... and by directing that
industry in such a manner as its produce may be of the greatest value, he in-
tends only his own aim, and he is in this, as in many other cases, led by an
invisible hand to promote an end which was no part of his intention .... By
pursuing his own interest he frequently promotes that of the society more ef-
fectively than when he really intends to promote it. (Ibid., 423)
 II. Hegel’s Arguments in Favor of a Free Market 51

Thus, the common good, or the universal value connected with eco-
nomic activity, is only achieved by “an invisible hand.” It is not willed
consciously. Because of this, Hegel agrees that the economic order gives
the impression of being “the disappearance of ethical life” (PR, # 181; PM,
# 23). But Hegel corrects this impression by arguing that the economic or-
der is not the essence of ethical life, but its appearance (PR, # 181). And
from Hegel's logic, we know that the moment of appearance is a necessary
moment (Hegel 1873: # 131, also # 112). We now come to the crucial as-
pect of the first argument for the free market. That aspect can be ex-
pressed in the form of a question. In what sense can we argue that the free
market is a necessary moment in the system of ethical institutions, given
that it is but the appearance of ethical life, not ethical life itself? Hegel's
answer to this question is that the economic order educates individuals to-
wards the full principle of subjectivity (PR, # 187). Indeed, the economic
order allows everybody to follow his own interests, but if the economic
subjects want to acquire the goods they wish to have, they must earn the
right to claim such goods. The only way that the economic order can pro-
vide such claims is if one provides goods or services that others are willing
to buy. Thus, economic subjects become interdependent (Ibid., # 183).
This interdependence is not something these economic subjects are at lib-
erty to accept or reject, because a human being is a bodily subject and, as
such, needs goods and services for his survival.34 The economic order as a
free market system is thus desirable because it educates the members of the
human community towards subjectivity, rather than compelling them to
accept economic rules handed down by the political order. Such a com-
pulsion would lack the moment of free consent to make the economic or-
der an ethical order for anybody but those who decide upon the rules
(Ibid., # 236 remark).
The second argument in favor of the free market is a more historical
one.35 Hegel believes that the modern era has created a society that is
radically different from previous societies (Ibid., # 273 remark). It has
done so because it has introduced the principle of subjectivity as a basic
principle in different domains of human activity (Ibid., # 261 addition).
This principle has arrived in economics with the replacement of mercantil-
ism by the free market system. The question that arises from this argument
is, “Why could the principle of subjectivity not be introduced into poli-
tics?” The political domain can then be seen as having legitimate authority
to guide the economy.

34
Thus Hegel can say that there is necessity or compulsion in the economic order (PR, #
184 and # 186).
35
The arguments of this section were developed further in chapter 2 of this book and in Ver
Eecke 1975a.
52 3. The Ethical Function of the Economy

I will answer this question in several steps. First, I will point out that al-
though the principle of subjectivity is respected in the organization of the
modern state (otherwise it could not be an ethical institution), Hegel gives
an explicit argument as to why the principle of subjectivity cannot be fully
tolerated in the political domain. Second, I will give an argument for why
the principle of subjectivity should be fully tolerated in the economic do-
main.
Hegel's idea which most obviously demonstrates that he wants to re-
strict the principle of subjectivity in the organization of the state is his re-
jection of popular suffrage.36
Let us, however, stress that Hegel's rejection of popular suffrage does
not mean that he favors an authoritarian or totalitarian regime. On the con-
trary, his rejection of universal suffrage is to be understood as the rejection
of an institutional arrangement that does not guarantee the representation
of all legitimate interests in the decision processes of the state. Again and
again, Hegel stresses that the state must recognize and promote the particu-
lar interests of the individual, and the values realized by the individual in
lower ethical institutions such as the family or the corporation.37 The sec-

36
The argument merits direct quotation:

To hold that every single person should share in deliberating and deciding on politi-
cal matters of general concern on the ground that all individuals are members of the
state, that its concerns are their concerns, and that it is their right that what is done
should be done with their knowledge and volition, is tantamount to a proposal to put
the democratic element without any rational form into the organism of the state, al-
though it is only in virtue of the possession of such a form that the state is an organi-
zation at all.... The concrete state is the whole, articulated into its particular groups.
The member of a state is a member of such a group, i.e., of a social class, and it is
only as characterized in this objective way that he comes under consideration when
we are dealing with the state. (PR, # 308 remark)

Arguing along the same lines, he writes:

The idea of free unrestricted election leaves this important consideration entirely at
the mercy of chance....As for popular suffrage, it may be further remarked that espe-
cially in large states it leads to electoral indifference, since the casting of a single
vote is of no significance where there is a multitude of electors. Even if a voting
qualification is highly valued and esteemed by those who are entitled to it, they still
do not enter the polling booth. Thus the result of an institution of this kind is more
likely to be the opposite of what was intended; election actually falls into the power
of a few, of a caucus, and so of the particular and contingent interest which is pre-
cisely what was to have been neutralized. (Ibid., ## 260–261)
37
Ibid., # 311 remark. A contemporary economist, James Buchanan, writes about this text
that Hegel has a “very clear recognition of the voting problem in its modern meaning....
Hegel stated the problem clearly and recognized its implications for the democratic proc-
 II. Hegel’s Arguments in Favor of a Free Market 53

ond step we now have to take is to ask ourselves why it is that radical sub-
jectivity cannot be tolerated in the political domain. One finds an answer
to this question in Hegel's analysis of the French Revolution, which ap-
pears in the Phenomenology under the title “Absolute Freedom and Ter-
ror.” It is the last passage in the section titled “Spirit in Self-Estrangement:
The Discipline of Culture and Civilization.”38 That passage highlights the
attempt by Western civilization to overcome the political alienation that
emerges in the legalistic Roman Empire. Hegel saw in the French Revolu-
tion and, more specifically, in Rousseau's utopian dream of direct democ-
racy, the final attempt to do away with political alienation. Hegel's contri-
bution shows the logical necessity of a type of absolute political freedom
in the manner of Rousseau and the brutal terror that existed during the
reign of Robespierre. Hegel's argument runs as follows: the utopian
dream of direct democracy is that everyone can directly participate in the
political decisions without the mediation of institutions. The result is that
little or nothing can be decided. If the affairs of the state become pressing
and a decision has to be made, it is necessary that one individual grasps
power. But to grasp power is to be outside the legitimate political order
and, thus, to be guilty. To maintain the ideal of direct democracy, the citi-
zens are therefore obliged to try to overthrow the government. As long as
the ideal of direct democracy prevails, there is no argument to which the
government can appeal in order to justify itself or in order to declare the
act of those who want to overthrow it illegitimate. Thus, says Hegel, “Be-
ing suspected, therefore, takes the place, or has the significance and the ef-
fect, of being guilty” (Hegel 1967 c, 606). Or, in other words, as Hegel
concludes, “The sole and only work and deed accomplished by universal
freedom is therefore death” (Ibid., 605).39 The analysis of the French

ess” (Buchanan 1974, 100). The danger of universal suffrage is that the influence of one
vote is negligible. Only if all other votes together create a tie does one’s own vote make a
difference. Under such circumstances, individual voters would serve their self-interest by
selling their votes to powerful entities, such as corporations or rich politicians. According
to Hegel, the common good would not be served by such a voting arrangement.
38
I give here only a summary of the argument with the purpose of understanding how
Hegel sees the free market economy as providing a helping hand for solving the philoso-
phical problem of contemporary politics. For a more detailed analysis, not referring to the
implications for the function of economics in contemporary society, see chapter 2 of this
book.
39
In a society in which, on the one hand, the population believes that the only legitimate
form of government is a Rousseau type of direct democracy and in which, on the other
hand, a powerful elite understands that direct democracy is too paralyzed to make the nec-
essary decisions for the survival of the state it is unavoidable that a conflict will arise be-
tween the general population and the powerful elite. According to Hegel, the conflict will
take on dramatic proportions because of the prevailing philosophical beliefs. The powerful
elite might be able to take decisions that serve the common good and the interests of the
54 3. The Ethical Function of the Economy

Revolution teaches Hegel the following metaphysical insight: the princi-

ple of radical subjectivity in politics is not possible. It invites him to give
an ontological reason: in politics, decisions must bind everyone but must
ultimately be made by one person – even though many may participate in
the decision (Ibid., 604). But political participation, in the form of repre-
sentative government, for instance, is not the same as deciding by oneself.
In the Philosophy of Right, Hegel then searches for a method by which po-
litical life can correctly incorporate the radical subjectivity which, if im-
plemented without mediation – as in direct democracy – is catastrophic.
Hegel's solution is to argue that the state, the universal, “does not prevail
or achieve completion except along with particular interests and through
the cooperation of particular knowing and willing.”40 These particular in-
terests are achieved in the family and the economic order. Given the cru-
cial nature of this argument, I quote Hegel directly on this matter:

It is therefore to these ideal spheres [the family and civil society] that the ac-
tual Idea assigns the material of this its finite actuality – namely human be-
ings as a mass – in such a way that the function assigned to any given indi-
vidual is visibly mediated by his circumstances, his caprice, and his personal
choice of his station in life. (PR, # 262)

It is now the purpose of the state to support and promote the particular
interests of the individuals as they are realized in these two institutions
(Ibid., ## 289, 261, 264–265). Hegel even calls these institutions “the firm
foundation...of the state,” (Ibid., # 265) and argues that the strength of the
modern state finds its source in the free market, in saying:

The principle of modern states has prodigious strength and depth because it
allows the principle of subjectivity to progress to its culmination in the ex-
tremes of self-subsistent personal particularity. (Ibid., # 260)

Summarizing the second argument for the free market, one can state that
Hegel demonstrated that radical subjectivity cannot be realized directly in
the political domain, even though such a principle is necessary. Its realiza-

state and of society. The philosophical beliefs prevailing in society do not take good deci-
sions as a reason for legitimizing a government. Only if all people participate in the deci-
sion process is an action by the state considered legitimate. The powerful elite thus knows
that they are illegitimate in the eyes of the population. This elite also believes that the pre-
vailing ideology unavoidably leads to societal disasters. The elite thus sees no way to pla-
cate an enemy whose ideology it beliefs will destroy the state. According to Hegel, the ter-
ror of Robespierre is the unavoidable outcome of the prevailing philosophy during the
French Revolution. For a more detailed analysis see: Ver Eecke 1975 a.
40
PR, # 260. The connection between the French Revolution and Hegel's concept of free-
dom is the object of two important essays (Ritter 1982; Hyppolite 1939, 321–352).
 II. Hegel’s Arguments in Favor of a Free Market 55

tion can, therefore, be only indirect, that is, in the duty of the state to toler-
ate and promote other institutions that embody the principle of radical sub-
jectivity – the family and the free market system. The reward for such a
state is that it can count on “the citizen's trust” (Ibid., # 265).
Hegel's third argument that can be used to prefer a free market over a
government-controlled economy is based on his philosophical anthropol-
ogy, particularly his view of labor. In Hegel's Theory of the Modern State,
(section: “Labour Alienation and the Power of the Market,” chapter:
“Modern Life and Social Reality”), Avineri places Hegel's anthropological
reflection on labor within the context of the metaphysical question of the
relation between consciousness and nature. At first nature is external –
alien to consciousness. But, because consciousness is “embodied con-
sciousness,” this separation between consciousness and nature must be
overcome. It must be overcome because a human being is a needy subject
who requires nature to satisfy his or her needs. A more Hegelian argument
is that consciousness seeks to find recognition of itself in the other (Avin-
eri 1972, 88). Consciousness does that by reducing nature to objects that
are useful for the satisfaction of its needs. Yet, this satisfaction is tempo-
rary. It has no permanence beyond the time that the satisfaction of con-
sumption lasts.
Human beings appropriate nature in a more permanent way by the crea-
tion of property rights. Through property rights, human beings do not re-
late to objects for the sole purpose of destroying them for the satisfaction
of needs. Property rights do not destroy objects; they preserve them. In
Hegel's words, property rights allow consciousness to “translate his free-
dom into an external sphere” (PR, # 41), thus “property is...[an] embodi-
ment of freedom” because “I as free will am an object to myself in what I
possess” (Ibid., # 45). The question then arises as to what is legitimate
property. One act that leads to legitimate property is the taking possession
of what belongs to no one (Ibid., ## 50–51). But in contemporary society,
there are few objects that belong to no one. Furthermore, taking posses-
sion of an object is connected with all kinds of accidental elements.
It is at this point that Hegel looks at labor to overcome the limitations
evident in the concept of property, and to serve as a permanent bridge be-
tween consciousness and nature. Avineri finds an explicit text to support
this thesis in Hegel's Realphilosophie (Avineri 1972, 88, quoted from
(Hegel 1967 b, 207)) “[only through labor] is the accidentality of coming
into possession being transcended.” Hegel gives the same mediating func-
tion to labor in his Phenomenology and in the Philosophy of Right. In the
Philosophy of Right, Hegel writes:

When I impose a form on something, the thing's determinate character as

mine acquires an independent externality and ceases to be restricted to my
56 3. The Ethical Function of the Economy

presence here and now and to the direct presence of my awareness and will.
To impose a form on a thing is the mode of taking possession most in con-
formity with the Idea to this extent, that it implies a union of subject and ob-
ject, although it varies endlessly with the quantitative character of the ob-
jects and the variety of subjective aims. (PR, # 56)

To “impose a form on something” is the shorthand definition for labor,

used by Hegel several times in the crucial section “Lordship and Bond-
age.”41 If “to impose a form on something” can correctly be construed as
Hegel's definition of labor, we have, in the above quotation from the Phi-
losophy of Right, an even stronger statement than the quotation from the
Realphilosophie mentioned by Avineri. Whereas in the latter, Hegel main-
tains that labor transcends the accidental nature of the problem of property,
in the Philosophy of Right he argues that work implies a union of subject
and object. Labor is thus explicitly stated to be the solution of the problem
of the separation of consciousness and nature. A close look at the crucial
texts in “Lordship and Bondage” supports this same thesis.
Labor is described here as being the solution to the problem of how
consciousness can become self-consciousness. In order to achieve that
level, consciousness must affirm two truths that cannot be maintained si-
multaneously. Consciousness must affirm that it is other than anything ob-
jective, be it life, or any objective determination such as physiological,
psychological or sociological characteristics. Consciousness must also ac-
cept that it is tied to the objective world. The first truth is often summa-
rized as follows: consciousness must affirm itself as pure negativity. The
figure of the master embodies this aspect in the right he has acquired to en-
joyment (consumption) of the goods prepared by the slave (Hegel 1967 c,
235). He thus expresses himself as pure negativity inasmuch as he is a de-
sire.42 As such, his “satisfaction...is itself only a state of evanescence, for
it lacks objectivity or subsistence” (Ibid., 238). Respect for objectivity
emerges due to the fear of death. It has a terrible consequence in that the
consciousness that experiences the fear of death must submit itself to the
other consciousness in order to avoid risking its life. This other con-

41
Here are some of the important phrases and sentences quoted from Hegel 1967 c: “The
negative relation to the object passes into the form of the object;” “This negative mediating
agency, this activity giving shape and form;” “Shaping or forming the object has not only
the positive significance that the bondsman becomes thereby aware of himself;” “By the
fact that the form is objectified, it does not become something other than the consciousness
moulding the thing through work;” “without the formative activity shaping the thing;” “its
formative activity;” (238–40) and “in the formative activity of work” (242).
42
“Desire has reserved to itself the pure negating of the object and thereby unalloyed feel-
ing of self” (Ibid., 238).
 II. Hegel’s Arguments in Favor of a Free Market 57

sciousness, the master, forces upon the first, the slave, the burden of ser-
vice and labor. But Hegel writes:

Labour...is desire restrained and checked, evanescence delayed and post-

poned; in other words, labour shapes and fashions the thing. The negative
relation to the object passes into the form of the object, into something that
is permanent and remains; because it is just for the labourer that the object
has independence. This negative mediating agency, this activity giving
shape and form, is at the same time the individual existence, the pure self-
existence of that consciousness, which now in the work it does is external-
ized and passes into the condition of permanence. The consciousness that
toils and serves accordingly attains by this means the direct apprehension of
that independent being as its self. (Ibid., 238)

The first truth of consciousness (negativity), and the second truth of

consciousness (respect for positivity) are thus synthesized in labor. It
should be noticed, however, that labor is a synthesis of the two truths in-
asmuch as labor is performed by the slave but only after being threatened
by the master. Hegel says as much:

Thus precisely in labour where there seemed to be merely some outsider's

mind and ideas involved, the bondsman becomes aware through this re-
discovery of himself of having and being a 'mind of his own.' (Ibid., 239,
emphasis added)

These texts of the Phenomenology will permit us to understand and to

complement the important thesis attributed by Avineri to Hegel: “la-
bour...[is] not only an actualization of man but also his possible emascula-
tion,” (Avineri 1972, 90) or “labour also brings forth conditions which
frustrate man's attempt to integrate himself into his world” (Ibid., 90).
Avineri relates the emasculating and alienating aspects of labor to its
social aspects (Ibid., 90 ff). Social aspects become more and more burden-
some for the individual as the economic order becomes more industrialized
and complex.43 Indeed, this complexity increases the productive capabili-
ties of human beings, but, at the same time, requires a division of labor.
This, in turn, breaks the obvious link between the individual's labor and his
concrete needs. Human beings cannot produce the goods that they need,

43
Adam Smith saw the great productive advantages of the division of labor and glorified it
by his example of the pin factory. Hegel points in the Philosophy of Right to several nega-
tive consequences of the division of labor (PR, ## 198, 243). The division of labor deprives
the individual workman of the possibility of being proud of having made a finished product
that he can see, admire, show to friends and bring home to his family for consumption. The
division of labor also submits the individual worker to the possible arbitrary whims of su-
pervisors.
58 3. The Ethical Function of the Economy

instead they must produce goods and services for sale, i.e., commodities.
Human beings must become part of a production system. One's own con-
tribution to the production system bears no obvious relation to the basket
of goods one needs. Furthermore, the value or worthlessness of one's own
contribution depends upon movements, shifts, or changes in the system it-
self. This dependence is obvious in the involuntary unemployment con-
nected with business cycles resulting in “whole masses...abandoned to
poverty...a poverty that cannot do anything for itself” (Hegel 1967 b, 232-
33; as quoted in Avineri, 1972, 97).
The text from the Phenomenology that we quoted earlier allows us to
point to a form of alienation in labor that is not related to its social aspect,
but to an ontological characteristic of labor. Indeed, labor is human toil. It
therefore necessarily requires that “desire [be] restrained and checked”
(PhG, 238).
However, consciousness is, by Hegel’s account, not capable of this self-
restraint. Consciousness needs to have experienced the importance of life
through fear of death, and it needs a master who forces it to transform this
general experience of the importance of life into the harsh task of daily toil
(Ibid., ## 238–240; PM, # 435 addition). One therefore must accept, ac-
cording to Hegel, that consciousness is at first aware of the repressive
characteristics connected with the toil of labor. Only later does conscious-
ness become aware of labor’s positive function. For that to be possible,
consciousness must have given up the illusionary thought that the idle life
of the master is a true human existence. Hegel teaches us that labor might
be the way for human beings to reconcile themselves to nature, but human
beings will not naturally prefer this reconciliation, given that labor itself
brings with it a social and an ontological alienation.44
At this point, the organization of the economic order makes a decisive
difference. If people are confronted with a command economy – that is, an
economy planned by a central command, as in some communist countries
– they are able to interpret the alienation connected with work as political
in origin. They do not have to accept it as the thorn of a rose, where the
rose is the reconciliation of consciousness with nature. Free labor, that is,
labor within the free market, does not have the option of interpreting the
alienation of work as political in origin. Consciousness can therefore only
interpret the alienation of work as the thorn of a rose, that is, as the act
which brings about the reconciliation of consciousness with nature.
Clearly, such a reconciliation requires self-discipline or, as Hegel calls it,
an education (Bildung). Free labor is ready for such education (PR, # 187

44
For a study of this dual aspect of labor and how one philosophical tradition (the natural
law tradition) had a hard time discovering the positive aspects of labor, see James B. Mur-
phy (1994), particularly from Section IV on: “Labor as a Bonum Arduum.”
 II. Hegel’s Arguments in Favor of a Free Market 59

and remark). Labor in a command economy finds an easy excuse to reject

this kind of self-education.
In summary, Hegel’s third argument in favor of the free market consists
of his belief that the free market is more capable, than a command econ-
omy, of allowing individuals to experience the reconciling dimension of
labor notwithstanding its alienating aspects. The reconciling dimension
consists of the awareness that in work human beings transcend their de-
pendence upon nature. To survive human beings must transform nature,
e.g., make French fries from potatoes. That transformation is also the oc-
casion for the human mind to imprint itself upon objects and thereby be-
come visible. The free market rewards effective transformation of nature
by creating demand for such products. The pain, boredom, and fatigue are
understood as the unavoidable characteristics of work required to deal with
human dependence upon nature. In a command economy, on the contrary,
the emphasis is upon the power of political decisions. Pain, boredom, fa-
tigue, and other nuisances of work can then be attributed to ineffective or
bad political decisions. The population then feels justified in trying to
avoid the negative consequences of the work experience as illustrated by
the statement of a Polish intellectual after the fall of communism: “The
communist state pretended that they paid us for our work; and we, in turn,
pretended that we worked.”
Hegel's fourth argument that can be used in favor of the free market is
based on his hope that the free market, combined with a constitutional
monarchy, might be able to provide a structural solution to the modern
predicament of human beings. That predicament has been well-formulated
by Rousseau as the distinction between a human being (homme) and a citi-
zen (citoyen). This distinction points to “the existence of two distinct
spheres of aims, rights, and responsibilities, the separate spheres of private
and public interest.” The question posed by Rousseau concerned “how
modern man could be restored to a unified condition, how the dualism of
private and public, or civil and political life could be overcome.”45
Hegel's attempt at solving the modern problem diagnosed by Rousseau
is typically Hegelian. He affirms the necessity of both extremes, and then
works toward proposing a synthesis.
It is well known that Hegel affirms the need of political life. “The state
is the actuality of the ethical Idea”; or, “The state is the actuality of con-
crete freedom” (PR, ## 257 and 260).
What is important for our argument at this point is to remember that
Hegel also affirmed the need for private life. More specifically, he argued

45
The quotes about Rousseau are from Joseph O'Malley's introduction to Karl Marx's Cri-
tique of Hegel's Philosophy of Right, xl (Marx 1977). There, O'Malley masterfully uses the
political ideas of Rousseau to contrast Hegel and Marx.
60 3. The Ethical Function of the Economy

that private life and interests should have the right to full affirmation in a
separate domain. “These institutions [the family and civil society] are the
components of the constitution...in the spheres of particularity. They are,
therefore, the firm foundation not only of the state but also of the citizen's
trust in it and sentiment towards it” (Ibid., # 265). But for particularity and
private interests to assert themselves, the state needs to allow the free mar-
ket. This is very clear in the following comment:

in ancient times the labour on the pyramids and other high monuments in
Egypt and Asia...were constructed for public ends, and the worker’s task
was not mediated through his private choice and particular interest. This in-
terest involves freedom of trade and commerce against control from above.
(Ibid., # 236)

This quotation is not just a side remark of Hegel's. It fits into his overall
vision of social and political life. One can infer this from his sharp criti-
cism of Greek political life and of Plato's political philosophy. This criti-
cism is at odds with his overall admiration for the political achievements of
Greece.46 Hegel's criticism of Greek political life can therefore not be un-
derstood as a rejection of the Greek democratic ideal. Instead, his criticism
focuses on the Greek state's method of curtailing property rights and eco-
nomic freedom. Thus he writes

In order to avert from their state the danger threatening to freedom from the
inequality of wealth, Solon and Lycurgus restricted property rights in nu-
merous ways and set various barriers to the freedom of choice, which might
have led to unequal wealth” (Ibid., 197)

This description of the factual relationship between the political and

economic order receives a normative aspect in the following quotation:

This is the beautiful happy life of the Greeks, which has been and is admired
so much. The people are at the same time split up into citizens as well as
constituting the one individual, the government. It inter-relates with itself
alone. The same will is the individual and the universal. The alienation of
the particularity of the will is its immediate preservation.... There is no pro-
test here: everyone knows himself immediately as universal, i.e., he gives up
his particularity without knowing it as such, as a self, an essence. (Hegel
1967 b, 249–50; quoted as translated by Avineri, emphasis added)

46

As free men the Greeks and Romans obeyed laws laid down by themselves, obeyed
men whom they had themselves appointed to office, waged wars on which they had
themselves decided, gave their property, exhausted their passions, and sacrificed
their lives by the thousands for an end which was their own (Hegel 1977, 154–55).
 II. Hegel’s Arguments in Favor of a Free Market 61

This criticism is even more apparent in Hegel's remark on Plato:

In ancient times, beautiful public life was the ethos of all, beauty [was] the
immediate unity of the universal and the particular, a work of art in which
no part separates itself from the whole...Plato's Republic is, like the
Lacedemonian state, this disappearance of the self-conscious individual.
(Ibid., 251)

Hegel also writes:

In Plato's state subjective freedom does not count, because people have their
occupation assigned them by the Guardians...but subjective freedom, which
must be respected, demands that individuals have free choice in this matter.
(PR, # 262 addition)

Or again:

In Plato's Republic, the Guardians are left to allot individuals to their par-
ticular classes and impose on them their particular tasks.... The same par-
ticular character pertains to tasks imposed in the East and in Egypt in con-
nection with collosal [sic] architectural undertakings, and so forth. In these
circumstances the principle of subjective freedom is lacking, i.e., the princi-
ple that the individual's substantive activity...shall be mediated through his
particular volition. (Ibid., # 299 remark, see also # 185 remark)

I can do no better than repeat Avineri's summary statement of Hegel's

view about Greek political life:

The polis is thus an entity which despite its apparent beauty enslaves the in-
dividual, and the democratic nature of its structure only accentuates the in-
dividual's total absorption in the political system. (Avineri 1972, 112)

The enslavement is the direct result of the absence of an intermediate insti-

tutional arrangement between the individual and the state, in which self-
interests express themselves. Thus, the free market can be said to have
been understood by Hegel as the institutional arrangement that liberated
the modern citizen from the enslavement to the state that was typical of the
Greek city-state. That liberation created the split in modern human beings
that was so well formulated by Rousseau. It is clear from the above that
Hegel does not intend to solve this predicament of modern human beings
by eliminating the private or the public domain. Instead, he develops two
lines of thought to identify a synthesis between these two domains. The
first is that the private life as affirmed in the free market educates the indi-
vidual and integrates him or her into a first form of public organization
62 3. The Ethical Function of the Economy

(Kraus 1931/1932, 21). The free market educates the individual because it
entices and even forces the individual as economic agent to pay attention
to the wishes of others. It makes the individual into a social being against
his own will. Furthermore, the economic order creates natural groupings
that integrate individuals. Hegel mentions two such groupings: classes
and corporations (PR, # 255 remark). Obviously, Hegel attaches great im-
portance to classes because he wants political representation at the legisla-
ture to be representation along class lines. He also attaches great impor-
tance to the corporation evident from the following statement: “The
sanctity of marriage and the dignity of Corporation membership are the
two fixed points round which the unorganized atoms of civil society re-
volve” (PM, ## 527–528, 534; PR, ## 201 ff., 250 ff.).
The second line of thought developed by Hegel is that the state should
be organized in such a way that the organization of the state guarantees
that private interests, as they are already transformed and made rational,
are promoted by the state (PR, ## 257–258, 260–261, 264).
These two lines of thought are Hegel's solution to the predicament of
the modern individual so well seen by Rousseau. The free market is a
critical aspect of Hegel's solution.
The fifth and last argument that can be used to argue in favor of the free
market emerges in a reflection about the proper relation between the indi-
vidual's right to morality and the right of the state to perform its duty.
Hegel sketches the possible conflict between these two rights very well:

The welfare of the state has claims to recognition totally different from
those of the welfare of the individual. The ethical substance, the state, has
its determinate being, i.e., its right, directly embodied in something existent,
something not abstract but concrete, and the principle of its conduct and be-
havior can only be this concrete existent and not one of the many universal
thoughts supposed to be moral commands. (Ibid., # 337 remark)

He continues:

When politics is alleged to clash with morals and so to be always wrong, the
doctrine propounded rests on superficial ideas about morality, the nature of
the state, and the state's relation to the moral point of view. (Ibid.)

From these remarks, at least this is clear: the right of the state can clash
with moral demands of individuals, and the state cannot be said to always
be wrong. But in such a clash, the state has power. There is, therefore,
something unequal about this clash. Individuals with moral convictions,
conflicting with the ethical values behind the actions of the state, are the
weaker parties. How can the right to morality of this weaker party be pro-
tected against a powerful state? Even though this difficulty emerges di-
 III. The Proper Relation between State and Market 63

rectly from a remark by Hegel, I have not found an answer in Hegel's texts.
It is, however, possible to construct an answer in line with Hegel's thought.
The right to morality can be protected, I submit, by making sure that the
state does not have full control over the individual.47 The free market
economy is a mechanism that limits the coercive control of the state over
individuals. The free market, once again, appears as an organization of the
economic domain that has a philosophical function. Indeed, it guarantees
the existence of income-earning potential outside the control of the state,
thereby limiting the coercive power of the state and promoting the individ-
ual's right to morality.48
The above five arguments, which can be used in favor of the organiza-
tion of the economic domain as a free market, might give the wrong im-
pression that the state has no right to intervene in the economic order. I
will use the third and last section of this chapter to correct this impression.

III. The Proper Relation between State and Free Market

The fact that one can find in Hegel's texts arguments useful to argue for the
free market does not mean that he rejects a role for the state in the func-
tioning of a free market economy.49 In fact, Hegel sees several roles for
the state. Some of these are well recognized, while others are more con-
troversial. Let us start with the generally recognized roles.
A first role of the state is dealing with the problem of property rights.
The protection of this right requires the creation and administration of a
system of justice. This implies the creation of laws and the organization of
power to enforce them (PR, # 209). In the history of economic thought, na-
tional defense and the administration of justice are normally connected

47
Another protection, which does not immediately concern us here, would be the emer-
gence of an institution at least semi-independent of the state and concerned with the indi-
vidual's right to morality, e.g., organized religion.
48
In the Soviet Union, the Academy of Science was unique in that it had a budget which
the scientists, not the state, controlled. Hence, the state could bring judicial action against
Sakharov for his moral criticism of the state, but the state did not have unrestricted ability
to punish Sakharov economically by firing him, or by cutting his salary drastically. The fi-
nancial independence of the Academy of Science is a partial explanation for why scientists
more than politicians, managers, or bureaucrats were able to be the moral conscience of the
Soviet Union. The Hegelian argument is that the free market makes most industries semi-
independent from the state and thus one might expect to find moral voices to appear in
many places in the capitalist society.
49
The government can also interfere improperly in the economy. I discuss that problem as
it relates to the United States in chapter 7 and 8 of this book.
64 3. The Ethical Function of the Economy

with the idea of protection of property. Whereas administration of justice

is understood to be a defense of property rights against threats internal to
the state, national defense is connected with protection of property rights
against threats from outside the state (Smith 1937, 651, 653 ff., esp. 659).
It is important to notice, however, that Hegel does not reduce national de-
fense or war to the defense of property. National defense exists for the de-
fense of all institutions that promote freedom.50
A second generally recognized role for the state in the economic domain
is what economic theory calls the provision of public goods.51 Economic
theory defines a public good by means of two characteristics.52 The first is
that the exclusion principle that is characteristic of private goods does not
work. The second characteristic is that a public good can be enjoyed by
more than one person. Goods having these two characteristics present sev-
eral problems for the free market, among others, that of the free-rider prob-
lem. It means that with public goods, the free market does not have the
capability of linking the enjoyment and consumption of a good with pay-
ment for its provision or its production. But if people do not pay for the
enjoyment of public goods, less will be invested in such goods than is op-
timal.53 Public goods will be underprovided in a free market system. In
modern economics, the voluntary exchange theory of taxation proposes
that the state help the free market achieve the optimum it cannot achieve
by itself.54 The state is supposed to ask all citizens who would enjoy a
public good how much they would be willing to pay. If the total cost for
providing the good is equal or less than what people are jointly willing to
pay, then the government should provide the good or the service and use
its power of taxation to collect the money necessary to finance the good.
Everybody should be happy with this solution because the government will
have to charge each citizen no more than he or she declared him or herself
willing to pay. It is thus a happy (voluntary) exchange of taxes for public
goods.
The concept of public good (or public bad) also covers goods that are
partially private goods and partially public goods and gives rise to another
problem with public goods. The partially public good connected with a

50
If one restricts the role of the state to this first role, one is said to favor a “minimal state”
or the “protective state”.
51
For a critical evaluation of my use of contemporary economic concepts to interpret
Hegel, see Priddat 1990, 99 ff.
52
We gave a preliminary definition in Ch 1 of this book. We provide a more thorough dis-
cussion of the definition of public goods in Chapter 6 of this book.
53
One can find a pedagogically written survey essay on the economic problems of public
goods in John G. Head’s “The Pure Theory of Public Goods” (Head 1974, 68–92).
54
For an explanation beyond the one summarized here on what economists mean by “vol-
untary exchange theory of taxation,” see ibid., ch.7.
 III. The Proper Relation between State and Market 65

private good is technically called an externality.55 An externality can be

either desirable (cultivating bees has the externality of increasing the fer-
tilization of fruit trees in the country), or undesirable (using coal to pro-
duce heat pollutes the air for everybody). The market mechanism, by
overlooking externalities, does not charge the full social cost of a product
with undesirable externalities and does not pay the full social benefit for a
product with positive externalities. Contemporary economic theory argues
that externalities are a source of market failures. Such market failures
leave room for improvement by government intervention. It is possible to
argue that Hegel tried, in an imperfect way, to formulate the problem of
public goods and externalities under the title “Police.”56
The public good's argument for governmental help in the economic or-
der can be formulated to include many areas of economic activity where
there is a market failure. The argument would allow the government the
option of choosing the best method of dealing with such inefficiencies.
These methods could include setting up state monopolies (guaranteeing
money supply), creating public utilities (gas or electric companies), pro-
ducing the service itself (water supply), or creating legal obligations (im-
position of pollution standards). The general argument for government in-
tervention in the case of market failure attributed to public goods is
implicitly present in Hegel's thought.57 The argument begins by acknowl-
edging that there is an element of compulsion in the free market” (PR, ##
186, 199). Indeed, to claim part of the social product, individuals must
first produce something that others want. If they do not produce anything,
or produce what others do not want, they cannot claim part of the social
product. But to survive, individuals must make such claims. The compul-
sion present in the free market entices or forces people to be efficient and
useful in their economic activity. Hegel then argues that if efficiency and
utility are values that justify the impersonal compulsion of the free market,
why would rational compulsion for that same purpose not be justified?
Rational compulsion is here understood to be governmental intervention
intended to correct the market inefficiencies.58

55
For a full discussion of the economist's view of externality, see ibid., chs.7, 9.
56
Thus PR, ## 232–234 could be said to be a reference to negative externalities. In # 235
we find Hegel presenting the public goods argument for intervention by public authority.
57
For a critical evaluation of this claim see Priddat 1990, 98 ff. For a further defense of the
concept of public good as a necessary tool for understanding correctly certain economic
phenomena see chapter 6 in this book.
58
In contemporary literature, two objections are made to the Hegelian conclusion that the
government should step in to remedy market failures in public goods provision. The first
objection is that government provision of goods and services often involves inefficiencies
which might be bigger than the market inefficiency it tries to remedy. Thus, Head writes:
“although serious market failure in public goods supply can readily be demonstrated, it
66 3. The Ethical Function of the Economy

A third generally recognized role for the state in the economy is the en-
forcement of competition in the free market. This includes antitrust legis-
lation and fair-trade laws.59 It is possible that Hegel had this role in mind
when he wrote:

The differing interests of producers and consumers may come into collision
with each other; and although a fair balance between them on the whole
may be brought about automatically, still their adjustment also requires a
control which stands above both and is consciously undertaken. (PR, # 236)

Hegel's argument, however, conflates three different arguments: colli-

sion, difficulty for individuals in obtaining necessary knowledge, and the
political interest in the quality and price of goods in absolutely universal
daily demand. Only the argument of collision has its proper place under
the heading of the enforcement of the competitive character of the free
market. The argument of lack of knowledge is mostly transformed into a
public good argument; that is, if one provides the knowledge, everybody
can enjoy it. It is thus an argument that belongs under the second role of
the government. The argument that some goods that are used daily have a
political significance is rarely employed unless one transforms it into a
merit good argument. But this brings us to government interventions that
are less universally accepted.
The merit good argument was introduced by the public-finance econo-
mist Richard Musgrave (Musgrave 1959, 13–14).60 A merit good is one
that the government considers so meritorious that it has the right to judge
whether or not the level of production and consumption provided by the
free market is acceptable. Musgrave gives the following as examples of
merit goods whose level of provision by the market is considered unac-
ceptable: education, inoculation against some illnesses, school lunches,
and low-cost housing.61 Typical of merit goods is that the government
does not respect consumer sovereignty, thus representing a violation of the

should not too readily be assumed that government can do better” (Head 1974, 91). The
second objection is that the concrete method of financing for government-provided public
goods is often not voluntary as required by economic theory: rather the financing method is
imposed by a political majority on a minority and thus involves some violation of property
rights. Thus, Schmidtz would allow such violation of property rights for provision of pub-
lic goods only when society’s survival is involved (Schmidtz 1991, 159). We will go into
more detail about these ideas in chapter 6 of this book.
59
One can find an authoritative defense of this role of government in (Simons 1973, esp.
chs. 3–4).
60
We introduced a preliminary discussion of the concept of (de)merit good in chapter 1 of
this book. We provide a fuller discussion in chapter 5 of this book.
61
The same is true of demerit goods, such as tobacco and liquor. On these goods a “pen-
alty taxation” is levied in order to discourage consumption.
 III. The Proper Relation between State and Market 67

principle of the free market. Clearly, the merit goods problem touches
upon a very troublesome role of the government in the economic order. In
the merit good debate, Musgrave and Head, among others, have argued for
the legitimacy of considering some goods as merit goods. McLure force-
fully rejected it. But, even Musgrave and Head acknowledge the difficulty
of finding a tight argument for legitimizing merit goods (Musgrave 1959,
13–14; Head 1974, chs.10–11; McLure 1968, 474–483). Hegel's reflec-
tions on the free market provide an illuminating understanding of the merit
good problem.
Hegel, as we have shown, gives solid arguments in favor of the free
market. All his arguments relate to what he calls the principle of subjectiv-
ity; the right of the individual to decide for himself what is the good. This
right is respected in the free market. The question arises as to whether the
free market mechanism can achieve the goals it is supposed to achieve.
According to Hegel, the economic system must, as we have seen, achieve
three goals: it must provide the goods and services required to satisfy the
needs of people; it must provide the opportunity to earn recognition in
work; it must provide a preliminary form of social integration that is sub-
sequently completed by the state.
The free market does not pursue these goods consciously. It relies upon
a threat and an enticement in the market mechanism: the rule that one may
claim goods and services only in return for goods and services that one
produces for others. If one combines this rule with the fact that people
have needs that they must fulfill, we can understand why Hegel calls this
the inner necessity, or the compulsion behind the appearance of free choice
(PR, ## 184, 186–187, 199). This compulsion, or inner necessity, does
not, however, guarantee the achievement of the three purposes of the eco-
nomic order. This inner necessity forces people to participate in the eco-
nomic order, and puts a penalty upon them if they do not participate, or if
they do not participate in it successfully. However, this penalty can strike
individuals for reasons beyond their control. Hegel writes, “Not only ca-
price,...but also contingencies, physical conditions, and factors grounded in
external circumstances...may reduce men to poverty” (Ibid., # 241). He
further connects poverty with “a consequent loss of the sense of right and
wrong, of honesty and the self-respect which makes a man insist on main-
taining himself by his own work and effort, [of which] the result is the
creation of a rabble of paupers.”62
Concerning the goal of self-realization in the economic order, Hegel
points out that there “is the subdivision and restriction of particular jobs.

62
Because Hegel juxtaposes poverty and loss of sense of right and wrong, it is difficult to
maintain that he does not see an inner link between the two (PR, # 244).
68 3. The Ethical Function of the Economy

This results in the dependence and distress of the class tied to work of that
sort, and these again entail inability to feel and enjoy the broader freedoms
and especially the intellectual benefits of civil society” (Ibid., # 243). The
free market therefore does not fully guarantee the achievement of any of
the three goals (satisfaction of needs, self-realization in work, and social
integration). It is at this point that Hegel makes his darkest diagnosis about
the free market. He argues that private charity is not satisfactory because
such help is contingent. It thus falls upon society and the state to organize
relief or prevent the crises of distress (Ibid., # 242). This is the Hegelian
argument for what is debated in economic theory as part of the problem of
merit goods. It runs as follows: the free market system can and should be
imposed on society because it promises to achieve three goals. If the free
market cannot reach these goals, it might be useful to have charitable help
from the wealthy, but it befalls the state to complement the charitable help
in such a way as to remove the contingencies and arbitrary aspects that are
present in charitable help. This is Hegel’s argument for the merit good
known as redistribution.63 Directly connected with this argument is
Hegel's pessimistic judgment about the free market. He states that provid-
ing such help and relief is destructive in that it prevents the poor from
earning self-respect by knowing that one has earned a living. Furthermore,
by providing goods and services to the poor without their contributing to
the social product, the state does “violate the principle of civil society”
(Ibid., # 245). Resentment then becomes a plausible reaction from those
who have to obey the principle of civil society and are required, further-
more, to pay for subsidies to the poor. Hegel then briefly entertains what
could be called a Keynesian technique of helping the poor by giving them
work, but he dismisses this solution as well. He then ends with the follow-
ing statement: “It hence becomes apparent that despite an excess of wealth
civil society is not rich enough; i.e., its own resources are insufficient to
check excessive poverty and the creation of a penurious rabble” (Ibid).

63
Priddat, too, uses the concept merit good to articulate Hegel’s vision of the function of
the state in the economy (Priddat 1990, 113). For a fuller development of the power of the
concept of merit good for articulating systematically the role of government in the economy
see chapter 5.
 Conclusion 69

Conclusion

Hegel explicitly and categorically classifies the new economic order (the
free market) as an ethical institution.64 He thereby makes it an objective
requirement for the realization of freedom in the modern world. Hegel,
however, sees that the free market cannot deliver the three goals it is sup-
posed to achieve as an ethical institution.65 Therefore, it is necessary to
conclude that, for Hegel, the free market is necessary, but that he maintains
that it cannot deliver the contributions it is supposed to make for the reali-
zation of human freedom. Hegel defends the free market on solid grounds,
without falling into the trap of giving it a salvific and sublimating role that
it clearly does not have.66 The Hegelian arguments are humble but realis-
tic, and thus solid. They give the government an extensive function in the
realization of human freedom. Specifically, the government has a role in
the economic order that goes beyond the role described as the “minimal
state”, or even as the “productive state.”67 The government has the task of
helping the economic order reach the three goals it is supposed to meet.68

64
For an economist, appreciating Hegel’s understanding that moral imperatives require in-
stitutional arrangements, including economic ones, see: Levine 1988, 126 and 145.
65
These three goods are: satisfaction of human needs for all, possibility of self-recognition
for all through work, and preliminary integration of individuals into the social order.
66
Michael Novak praises democratic capitalism; though it mobilizes all vices; presumably
it will sublimate them. “Its [democratic capitalism's] chief aim is to fragment and to check
power, but not to repress sin. Within it every human vice flourishes. Entrepreneurs from
around the world, it appears, flock to it and teach it new cultural specialties, of vice as well
as virtue, of indelicacy as well as delicacy.” He then mentions “massage parlors, pornogra-
phy shops, pickpockets, winos, prostitutes, pushers, punk rock, chambers for group sex”
(Novak 1982, 350). He also praises, democratic capitalism because it imitates caritas, the
highest form of love, “by reaching out, creating, inventing, producing, and distributing,
raising the material base of the common good....It makes communal life more active, in-
tense, voluntary, and multiple....The highest goal of the political economy of democratic
capitalism is to be suffused by caritas” (Ibid., 357). For a summary of the hopes put into
the sublimating potential of the free market as they were already present in the eighteenth
century, see Hirschman 1977a.
67
In economic theory, the function of the “minimal state” is protection. It refers to the pro-
tection of life and property by police, courts, and army. The productive state refers to the
state when it helps individuals produce public goods. Among others, see Buchanan 1975 b,
68–70.
68
The correctness of this philosophical claim is supported by the analysis of the causes of
the Asian economic miracle. Thus, Jose Campos and Hilton Root attribute a key role in the
Asian economic miracle to reduced poverty, improved income distribution (Chapter 1) and
different well thought out wealth-sharing mechanisms (Chapter 3). In their introduction
Campos and Root summarize this aspect of the Asian economic miracle by the “principle of
shared growth” and point out that “rapid economic growth has been associated with rela-
tively low and declining levels of income inequality” (Campos & Root 1996, 1 and 8).
70 3. The Ethical Function of the Economy

Hegel did not see how it was possible to do so successfully, but that did
not prevent him from assigning the task to society and the state.
4. The Economic Order: A Human, Not a Natural
Institution

Abstract

In this chapter I challenge the implicit (and sometimes explicit) claim of

Adam Smith that the free market is a natural system which would emerge
on its own if governments did not interfere. I argue instead that the free
market is a tenuous human institution which needs support and protection.
I build my claim upon Adam Smith’s open avowal that property rights are
necessary for the free market and upon the neo-liberal demand that gov-
ernments must intervene in order to maintain the competitive nature of the
free market so as to guarantee its efficiency. Hegel incorporates both
claims that property rights and economic efficiency are necessary. For
Hegel both are necessary for achieving freedom. I then point out that de-
fending the above two claims with the philosophical argument that they
contribute to freedom implies that both property rights and economic effi-
ciency must not be allowed to undermine freedom. This provides the phi-
losophical foundation for minimal welfare measures: society must make it
possible for all to acquire the property necessary for exercising freedom or
to enjoy the fruits of socially enforced efficiency. Hegel thereby teaches
us that a philosophical reflection upon the writings of Adam Smith and the
doctrines of neo-liberalism provide an argument in favor of some form of
welfare state. Borrowing from Hegel, I then point out that any welfare
state contradicts a basic principle of the free market: no one gets something
for nothing. For this reason, I believe that alleviating poverty in a free
market system is always going to be a tenuous affair.

I. Adam Smith’s Ontology of the Economy

Adam Smith sometimes has been called the last British philosopher who
was concerned with a full-fledged philosophical speculation about eco-
72 4. The Economic Order: A Human, Not a Natural Institution

nomics and economic man (Hirschman 1977a, 112). One of Adam Smith's
achievements is that he tried to describe the ontological status of the eco-
nomic domain. In his writings he attacks the mercantilist and the
physiocratic thought systems which preceded him. Smith argues that both
gave undue preference to or imposed harmful restraint on some economic
activities. Therefore, by implication, he must consider the economic sys-
tem to be ontologically a natural system. The crucial quotation that ex-
presses this view is:

All systems either of preference or of restraint, therefore, being thus com-

pletely taken away, the obvious and simple system of natural liberty estab-
lishes itself of its own accord. (Smith, 651)

Such an ontological view of the free market system allows the economist
to study the laws of this natural system in the same way as Newton studied
nature.
If the economic domain were simply a natural system, clearly, ethics
would have no place, or at most a marginal one, in economic theory. In
this chapter I wish to argue against Adam Smith's view of the ontology of
the economic domain. I will propose a different ontology which will allow
me to argue that ethics must be central to economic theory.
There are at least two arguments that challenge Adam Smith's ontology.
The first argument can be developed by reflecting on the function of prop-
erty. The second argument can be developed by reflecting on the publica-
tions of a particular group of economists. The German label, neo-liberals,
seems very appropriate for them.69 The philosophical aspect of these two
arguments will be developed by making use of Hegel’s philosophy.

II. The Function of Property

In explaining how he views the ontology of the economic domain, Adam

Smith writes the following:

Every man, as long as he does not violate the laws of justice, is left perfectly
free to pursue his own interest his own way, and to bring both his industry

69
Given the ambivalence of the term liberalism in the U.S. as compared with the meaning
of this term in Europe, including Great Britain, I am aware that the term neo-liberalism
might share the same ambivalence. I therefore explicitly state that I take the term as a
translation of the German term: “Neo-Liberalismus.”
 II. The Function of Property 73

and capital into competition with those of any other man, or order of men.
(Smith, 651)

One can therefore argue that even Adam Smith recognizes that there
must be restrictions to free competition in the economic domain. Free
competition must recognize the laws of justice, which protect life and
property. But about property, Adam Smith writes, “Civil government, in
so far as it is instituted for the security of property, is in reality instituted
for the defense of the rich against the poor, or of those who have some
property against those who have none at all” (Smith, 674).
Adam Smith therefore understands that property rights are not just a
fact; they are a societal action taken in favor of some and against others.
Given that property rights are not just a fact but also an action, it is possi-
ble to ask if that action is efficient, wise, prudent, or even just. All of these
questions take the problem of property out of the domain of nature (facts,
events) and relocate it into the domain of values. Rather than look upon
property as a given, one can view property as something that requires justi-
fication.
What justification can there be for property rights? If one takes Stanley
J. Benn's article in The Encyclopedia of Philosophy (Edwards 1967, vol. 6,
491 ff.) as a starting point, one learns that in the history of thought, several
forms of justification have been given. Benn highlights four such ap-
proaches. The Church Fathers thought that a property owner was obliged
to administer property for the benefit of all, given that property once be-
longed to all. Benn calls this the stewardship view of ownership. The sec-
ond view is that of the natural law tradition of which Locke is a crucial
spokesperson. In that tradition, individuals have a natural right to objects
that were res nullius before they added their own labor to it. The third
view is that of the utilitarian tradition. Hume already formulates the main
argument of that tradition. The argument says that property should be up-
held because it encourages “useful habits and accomplishments.” The
fourth approach is associated with the German philosophical tradition.
Hegel formulates that view as follows: “Property is the first embodiment
of freedom and so is in itself a substantive end” (PR, # 45).
The natural law and utilitarian traditions are vulnerable to some easy
objections. The natural law tradition grounds the justification of property
rights in the fact that labor has been added to a res nullius. Such a view
might be sufficient to discuss property rights in a society where most
things are res nullius. However, when property rights are established and
productive relations are complex, the natural law tradition does not provide
a guideline for deciding between competing claims for re-compensation
74 4. The Economic Order: A Human, Not a Natural Institution

(remuneration) on the basis of the contributions to the productive process

of labor, management, and capital respectively.
The utilitarian tradition justifies property because it encourages “useful
habits and accomplishments.” However, this argument can be turned
around by contending that whenever any violation of property rights en-
courages useful habits and accomplishments, property rights should be vio-
lated. Thus, the same principle can be invoked equally well to undermine
as to defend property rights.70
One is left, then, with the view of the Church Fathers and of the German
philosophical tradition. Both traditions tie the justification of property to a
moral concept. The Church Fathers tie their justification to the concept of
stewardship rooted in a religious view of the world; the German philoso-
phical tradition ties it to the concept of freedom. Given the pluralist nature
of contemporary society, a religious argument needs the backing of a phi-
losophical argument in order to even appear to have universal validity. We
are thus left with the argument of the German philosophical tradition.
In the next pages, I will try to clarify the relationship between property
and freedom as it is worked out by one German philosopher, Hegel.
According to Hegel, a person's freedom has two dimensions. A person
has inner freedom, and he has freedom realized in the world. Morality is
the study of inner freedom. Yet, this is but a partial study of the problem
of freedom. Hegel says elegantly that there is an additional part to the
study of freedom in the following statement: “A person must translate his
freedom into an external sphere” (PR, # 41). The first step to such an ex-
ternal freedom is to lay claim to external things. This is the right of appro-
priation of things which Hegel says is an absolute right of the individual.
He does not make such a right conditional upon impregnating the thing
with labor. Hegel simply says that things have no end in themselves. A
person has a substantive end to make things his own. And, that argument
he considers sufficient justification for possession. But possession is not
yet property because property is more than mere possession.71 Indeed,
where possession is a fact, property is a right. What then is the justifica-

70
Utilitarians might not think that such a situation is necessarily a bad thing since they are
concerned with usefulness or utility and only concerned with property rights as a means to
increasing utility. My objection to the utilitarian view of property is precisely that property
is a concept that is not reducible to utility. Indeed, I would argue that a city faced with
bandits who threaten to destroy the property of the whole city unless the city takes away the
property of an enemy of the bandits should not violate the property rights of the enemy of
the bandits. The city might try to buy the property of the enemy of the bandits in order to
be able to satisfy the bandits by destroying then that property. However, buying out a per-
son is recognizing and respecting his or her property rights.
71
For a critical study about Hegel’s alleged inconsistency in his use of the concepts of pos-
session and property see Cristi 1978.
 II. The Function of Property 75

tion of property? It is that by being able to call an object mine, I become

through my possession an object of my own will. In willing my posses-
sion, I will my freedom as external. In having my possession become
property, I therefore have the possibility of having my willing of my own
external freedom recognized by society.
Thus, a philosophical justification of property ties property to a crucial
aspect of freedom of the individual. The realization of that aspect of indi-
vidual freedom is permanently threatened unless society provides help.
Protection of property is the help society can provide. Is it rational to
claim that personal possession is so important that society can be called
upon to protect it as property, while at the same time, claiming that per-
sonal possession is not important enough to call upon society to help indi-
viduals acquire such personal possession? If the justification is tied to the
concept of freedom, then both must be argued for (Winfield 1988, 239)!72
This argument does not specify how much property, nor what kinds of
property, must be made available to an individual.
This kind of philosophical thinking about property, however, has the
advantage that it can make sense out of the difficult economic concept of
merit good.73 Indeed, modern Western democracies have decided that
some or all of the following goods, such as retirement benefits, unem-
ployment benefits, educational opportunities, health-care, and housing pos-
sibilities are claims that individuals should have. By means of mandatory
participation in such programs as social security and unemployment insur-
ance or by direct subsidies, the government is indeed capable of insuring
that these special kinds of property claims are guaranteed. The force of my
argument here, however, is not that I have justified these kinds of merit
goods, but simply that I have a philosophical framework in which to locate
specific governmental activities. If one adopts a strict free market philoso-
phy, one has no framework to even locate such governmental activities,
even though they are economically relevant. In order to be complete, an
economic theory will, therefore, have to rely on an economic philosophy
other than a mechanistic view of the free market. That richer economic
philosophy is emerging in the writings of a group of economists called the
neo-liberals.74 It is to them that I now turn.

72
In their analysis of the Asian economic miracle, Campos and Root stress these two
points. The successful Asian societies created “a secure political foundation for economic
rights,” and there was a “commitment to shared growth” (Campos and Root 1996, 175 and
177).
73
For a comprehensive survey of the debate on the concept of merit good, see Head 1974.
See also chapter 5 in this book in which I clarify, defend, and expand the concept of merit
good.
74
I purposefully restrict myself to the study of the neo-liberal movement because I want to
emphasize that economic thought itself made a shift in the way it viewed the ontology of
76 4. The Economic Order: A Human, Not a Natural Institution

III. The Neo-Liberal Economic Philosophy

The neo-liberal movement emerged in different countries. In Austria,

Ludwig von Mises is the crucial figure. In Germany, it is the group of
economists connected with the journal Ordo and centered in Freiburg
which is important. In England, it is the “London School of Economics”
and, in the United States, it is the Chicago school where Henry Simons is
recognized as its founder.75
This movement was stimulated by different factors in each different
center. Von Mises started a theoretical discussion with the Marxists about
the essence of the economic domain, which he claims is the economic cal-
culus for which the ideal prices of the competitive market are necessary
(Mises 1975). On the other hand, Simons was disappointed with the chaos
of regulations and subsidies that were practiced in the American economy
and which made a mockery of the idea of a free competitive market
(Simons 1948, 84).
It is true that some of the neo-liberals stress the continuity between the
neo-liberal movement and the old liberal tradition (Simons 1973, 1; Hayek
1978, 134 ff.; Hayek 1960, 220 ff.). When it comes to an appreciation of
the free market, though, the neo-liberals make an important correction to
traditional liberal thought. Instead of maintaining that the free market is a
natural system, they see it as a tenuous human institution. Furthermore,
the neo-liberals see that the free market imposes a burden on its partici-
pants, each of whom tries to escape those burdens, even though these par-
ticipants might want to see that others are forced to accept the burdens of
the free market.76 Thus, a crucial idea of neo-liberalism emerges: the free
market is a burdensome, fragile human institution. That institution must
be supported in order to survive. It is the task of the government to sup-
port it.
Typical for the neo-liberals is that the state receives a new function.
With the classical economists, the function of the state was restricted to the
so-called “minimal state,” a state responsible for national defense, internal

the economy. For a philosophical essay that reflects on commercial life by means of the
history of thought from Plato to Hayek and Baudrillard see Murray (1997): “General Intro-
duction: On Studying Commercial Life.”
75
For an enumeration of the members of the different neo-liberal movements, see Nawroth
1961, 5–6.
76
The idea of a free market includes the demand that goods be sold at competitive prices.
Clearly, that demand is an impediment for maximizing profits for people with power,
whether that power be of a military, political or monopolistic nature. The idea of the free
market thus implies burdens for some.
 III. The Neo-Liberal Economic Philosophy 77

justice and maintenance of roads and communication (Smith, 651).77 With

the neo-liberals the state receives the additional task of having to maintain
and support the free competitive market. Even more, by this argument, the
state will have to take any initiative that improves the value by which they
defend the competitive market. Thus, any initiative that brings the actual
free market closer to the ideal competitive market will become desirable.
H. Simons, among others, argues against farm subsidies, for consumer
information, against advertisement, and for access of consumers to whole-
sale markets (Simons 1973, 78–89).78 Each of these measures is defended
as contributing to a more competitive market.

77
In another passage Smith makes the restriction of the government role less absolute. He
writes: “In general, if any branch of trade, or any division of labour, be advantageous to the
public, the freer and more general the competition, it will always be the more so” (Smith,
313) (Italics are mine, WVE). In that same page he provides an interesting exception: “If
bankers are restrained from issuing any circulating bank notes or notes payable to the
bearer, for less than a certain sum; and if they are subjected to the obligation of an immedi-
ate and unconditional payment of such bank notes as soon as presented, their trade may,
with safety to the public, be rendered in all other respects perfectly free” (Ibid.).
78
Farm subsidies are currently still an important problem preventing not only a more effi-
cient global economy but also hurting disproportionately the poorer developing countries.
Consider the statement by the President of the World Bank, Paul Wolfowitz: “Let me take a
moment to explain how trade barriers are hurting the poor. Trade barriers deprive poor
countries of markets to sell their goods. Under current conditions, developing countries are
not getting the most out of world trade. Their exports face the most severe restrictions all
around the globe. Protection in rich countries is highest in the products that developing
countries produce, particularly agriculture and labor-intensive manufactured products and
services. Of all of these, agricultural protection is particularly harmful to the world's poor.
Three-quarters of the world's poor, remember, live in rural areas; so reducing barriers to ag-
ricultural trade in most countries can directly reduce poverty. The sheer size of these barri-
ers is staggering. Rich countries today each year spend approximately US$280 billion-let
me repeat that, US$280 billion each year -to support their agricultural producers. That
comes out to more than US$5 billion each week. Out of that, the EU accounts for roughly
half, US$133 billion; but the United States and Japan spend enormous amounts, as well-
roughly the same (US$47 billion for the United States and US$49 billion for Japan). These
amounts are particularly disturbing when you compare them with the levels of development
assistance. In the national context, if you think about it, it means the United States is spend-
ing 2.5 times as much, US$2.50, on its agricultural producers for every US$1 that it spends
on development assistance. Japan is spending US$5 on agricultural subsidies for every
US$1 it spends on development. This support to agricultural producers is paid by taxpayers,
and it is paid by consumers in higher prices. Poor consumers are disproportionately affected
by these higher prices. So developed countries, their taxpayers, their consumers, also stand
to gain from agricultural liberalization. Reform is fundamentally a matter of long-term self-
interest” (Wolfowitz 2005). For research back-up of Wolfowitz’s claims see: Anderson &
Martin, 2005; Mensbrugghe).
78 4. The Economic Order: A Human, Not a Natural Institution

IV. Philosophical Significance of the Neo-Liberal

Movement

The most important contribution of the neo-liberals is that they locate the
free market in a different ontological space than Adam Smith (Smith, 651).
The neo-liberal movement has presented different kinds of arguments as
to why the free market is a value and, thus, ought to be protected and nur-
tured. Among the most frequently encountered arguments, one finds the
following four. First and foremost, neo-liberals defend the free market be-
cause it is an arrangement that automatically encourages economic effi-
ciency. Indeed, the free market automatically rewards those who produce
most efficiently what others want (Mises 1975, 160).79 Second, neo-
liberals defend the free market because it promotes certain desirable an-
thropological virtues. The free market is said to promote industriousness,
responsibility, reliability, and initiative.80 Third, neo-liberals defend the
free market because of a philosophic predilection for freedom. Indeed, the
free market allows everybody to choose constantly in the market place.
Even though such freedom of choice is not the highest form of freedom,
neo-liberals find that it is a very important instantiation of freedom
(Friedman 1962, 8).81 Finally, neo-liberals defend the free market for po-
litical reasons. According to this argument, the political and economic
domains are not fully independent. It is said that in the political domain it
is possible to have a democratic or a dictatorial government. In the eco-
nomic domain it is said to be possible to have a free economy, a socialist,
or a command economy. The neo-liberal author Hayek in his book, Road
to Serfdom, defends the thesis that a command economy requires a politi-
cal dictatorship in order to implement economic plans. He further argues
that moderate planning in economic affairs will necessitate more and more
planning until it becomes indistinguishable from total planning. Again,

79
Also, “When there is no free market, there is no pricing mechanism; without a pricing
mechanism, there is no economic calculation” (111); “for in practice the propertyless man-
ager can only be held morally responsible for losses incurred. And so ethical losses are jux-
taposed with opportunities for material gain. The property owner on the other hand himself
bears responsibility, as he himself must primarily feel the loss arising from unwisely con-
ducted business” (122) (Additionally: Hayek 1944, 124–25).
80
The idea that the free market has sublimating potential antedates the neo-liberal move-
ment. That sublimating potential received an appealing formulation in the French expres-
sion: “le doux commerce.” For a study of the discovery of this kind of potential of the free
market, see Hirschman 1977, e.g., 71, 58–63.
81
This argument is often connected with the argument for stable money, because money is
the technical instrument of free choice within the economic domain (Friedman 1962, 27,
ch. III; Hayek 1944, 89 ff.; Mises 1975, 98–104).
 IV. Philosophical Significance of the Neo-Liberal Movement 79

such total planning will require a dictatorship. Hayek's conclusion is,

therefore, that if one wants a democratic government, one has to accept
and to defend the free market system (Hayek 1944, ch. V; Friedman 1962,
8–9). The neo-liberal movement defends the free market even though free
competition might lead to such undesirable consequences as bankruptcies
of certain industries, displacement of labor in unproductive sectors, etc.
(Ibid., 100). The neo-liberal theory considers free competition to be so
important that it argues that the state should not promote any ends by
mechanisms that distort the free competitive market. Among the mecha-
nisms attacked by the neo-liberal doctrine are restrictions of production or
provision of subsidies for the purpose of achieving an incomes policy. The
neo-liberal doctrine could thus be said to treat the free competitive market
as a quasi ultimate or absolute value.
My task now will be to test whether any of the four arguments presented
by the neo-liberals for the importance of the free market can be used as a
valid argument for the thesis that the free market is an ultimate or absolute
value.
Let me start by analyzing the subsidiary arguments. The first subsidiary
argument favoring of the free market states that political democracy can
survive only if one has a free economy. Such an argument presupposes
that political freedom cannot be guaranteed by political institutions or ar-
rangements such as a constitution, separation of powers, independence of
the judiciary, life-time or fixed term appointments of crucial functions in
society (supreme court, federal reserve boards, professorial appointments).
Such an argument refuses to accept the autonomy of different domains
(i.e., the economic and the political ones). It fears an overwhelming influ-
ence of one domain over another. Such a strategy of argumentation is
called reductionism. This reductionist argument had some plausibility
prior to World War II with the emergence of fascistic regimes, yet it has
lost its practical plausibility since World War II. Indeed, the mixed
economies of Western Europe and Scandinavia have not destroyed democ-
racy.
The second subsidiary argument puts forth the belief that the free mar-
ket promotes desirable anthropological virtues. It is clear that it is nice to
have a population that is industrious, responsible, reliable, and has initia-
tive. Is it the case, however, that those are the highest moral virtues?
The moral literature provides a hierarchy of virtues with such virtues as
courage, generosity, magnanimity, compassion and friendship situated on a
higher moral plane than the virtues extolled by the neo-liberals (Soko-
lowski). It is not clear how the competitive market could automatically
promote this latter series of virtues. The neo-liberal argument amounts to
selective appreciation of some virtues. These selectively appreciated vir-
80 4. The Economic Order: A Human, Not a Natural Institution

tues are commercially valuable. They are, therefore, instrumental virtues.

They are not virtues that directly promote the highest moral good.
The third subsidiary argument states that the free market allows for the
exercise of freedom. The free market is, indeed, a system that allows any
one individual to make hundreds of choices everyday. However, being
able to choose between eggs and bacon or bread and cereal in the morning
is one thing. It is another thing to become a free individual in the sense of
being able to guide the direction of one's life. Compared with this deeper
form of freedom, freedom of choice is but a surface phenomenon.
Besides subsidiary arguments for the free market, the neo-liberal
movement presents a main argument in favor of the free market. The neo-
liberals argue that the free market promotes economic efficiency. The free
market does so because it gives persons a claim to the social product based
on their marginal contribution to that social product. It thereby ties the
self-interest of individuals directly to efficiency.
The question which now arises naturally is, why is efficiency valuable?
Why is it so valuable, in the opinion of neo-liberals, that it can justify such
drastic government interventions as antitrust laws, laws against unfair
trade, etc., while at the same time justifying in-action when it comes to
bankruptcies caused by lack of competitive efficiency?
The answer to this question can make use of common sense insights.
Efficiency is important because human beings are faced with scarcity. It is
the scarcity of resources that imposes restraints on human beings' wishes,
initiatives and choices. In some cases, it is the scarcity of resources that
imposes hardship on people. In as much as efficiency diminishes that
scarcity it contributes to all those desirable goals that are thwarted by scar-
city of resources.
The argument of common sense locates efficiency as an instrumental
value. But if the argument in favor of the free market is based on an in-
strumental value, then it is the case that the justification of the free market
is not absolute but only conditional. It is this conditional validity of the
free market that I wish to explore further.

V. The Free Market as a Subsidiary or as an Absolute

Value

One way to approach this problem is by means of Hegel's Philosophy of

Right. Hegel puts forth freedom as an absolute value. Hegel, however,
points out that an individual is not capable of reaching freedom alone. He
is not capable of doing so because the human will is such that, on the one
 V. The Free Market as a Subsidiary or as an Absolute Value 81

hand, it aims at the total good (in Hegelian language, the universal) while,
on the other hand, in order to will something, human beings have to will a
particular (PR, ## 5–7). But, a particular is the opposite of the universal.
Hegel sees the solution to this paradox in the creation of social institu-
tions which promote the freedom of all. Participating in such institutions
is at the same time promoting such institutions. In this way, a particular
deed has universal validity. Thus, accepting a legal contract is, at the same
time, enjoying the personal advantages of such a contract and promoting
the legal order. In promoting the legal order rather than undermining it, a
person increases the trust of others in the legal order. One's personal act
thereby has universal significance.
Hegel, however, hastens to add that legal freedom is but a limited form
of freedom. Indeed, the legal order does not actually guarantee one's legal
rights. Criminals can actually violate them. All the legal order can do is
punish a criminal who violated a legal right, after the fact. The legal order
cannot always guarantee restitution. Clearly, promotion of legality is not
the highest form of freedom (PR, ## 73–74).
Similarly, the free market is an institution which promotes the freedom
of all. Indeed, the free market is an arrangement which allows individuals
a form of freedom that society could not give to its members in the politi-
cal domain. It allows all individuals to do what they want. In the political
domain, that would mean direct democracy and would require unanimity
for all decisions. In his analysis of the French Revolution, Hegel argues,
as we saw in Chapter 2, that the terror of Robespierre was unavoidable and
that its occurrence destroyed a human illusion: the search for a political
system without alienation. The economic domain, though, allows for an
arrangement where, according to Adam Smith, “Every man... is left per-
fectly free to pursue his own interest in his own way, and to bring both his
industry and capital into competition with those of any other man, or order
of men”(Smith, 651). Contrary to what happens in the political domain,
giving such a freedom to people in the economic domain does not result in
chaos (chapter 2 and chapter 3, Section II of this book).
The discovery of these aspects of the economic domain was one of the
achievements of the British, in particular, the Scottish economists. It is on
those writings that Hegel's philosophical reflections are based.82
Hegel observes that chaos does not occur in the economic domain, when
every individual is left free to pursue her own interests, from a th because

82
For a discussion of Hegel's relationship with the British, in particular the Scottish,
economists, see Chamley 1963; Denis 1984; Waszek 1988. Particularly influential on
Hegel was James Steuart.
82 4. The Economic Order: A Human, Not a Natural Institution

it is to some extent a domain subject to determinism.83 Determinism in the

economic domain results from a threat inherent in the free market, com-
bined with a motive in individuals to pay heed to that threat (PR, # 186).
The threat comes from the free market giving claims to part of the social
product only in so far as one has participated in the creation of a product
demanded by others; thus, if one does not participate in the social product,
the free market has the automatically executed threat of not providing part
of the social product.
Given this automatically executed threat and the fact that individuals
must pay heed to this threat because of their needs, it is the case that the
free market is an important instrument for increasing human productivity.
The free market, furthermore, allows the human community as a group to
produce a diversity of goods that each individual cannot produce for her-
self.84
The free market is thus an institution that provides all participating indi-
viduals a claim to part of the social product which is more diversified and
bigger than individuals could produce for themselves. The free market is
therefore an institution that promotes people's independence from the
threat and the pressure of needs. By participating in and willing the free
market, the individual thus wills something that benefits all. In that sense,
his or her participation in the free market has universal significance.
This Hegelian argument is already present in Adam Smith’s theory and
is further elaborated by the neo-liberals. There is in Hegel a second and
novel argument as to what kind of freedom the free market is providing.
According to Hegel, freedom involves the capability of the individual to
acknowledge his dependence upon others. Hegel considers this to be a dif-

83
Chaos can have at least three different meanings which it is useful to distinguish. It can
mean that a system shows such great disturbance that the underlaying principles of the sys-
tem are best given up. This was Hegel’s opinion about the political philosophy of Rous-
seau, which inspired the French revolution, which in turn led to the terror of Robespierre.
Chaos can also mean that a system shows serious disturbances but that the principles under-
lying the system are still considered valid and thus only in need of correction. Hegel wrote
before 1831 and thus before the great crises of the capitalist system, such as the super-
inflation of the Weimar Republic, and the 1929 crash of the New York Stock Exchange.
One can thus not consult Hegel about their meaning. It is my opinion that it would be in
line with Hegel’s thought to argue that these crises were not able to undo the truth of Adam
Smith’s insights in the free market economy. They can be addressed, as Adam Smith ad-
dressed some credit problems in his own time, by proper government regulations (Smith,
313). Finally, chaos can also refer to a mathematical concept used to study the disturbances
in the financial markets in the capitalist system (Deboeck., 263–314).
84
This was even recognized by such a sharp critic of the free market system as Karl Marx
(Marx 1948, 12). The classic argument has been given in A. Smith's example of pin-
making, resulting in his claims that: “The greatest improvement in the productive power of
labour... seem[s] to have been the effects of the division of labour”(Smith, 3 ff.).
 VI. Beyond Internal Restrictions of the Free Market 83

ficult task. He believes that an individual prefers to will his independence

rather than his dependence. It is precisely at this point that the free market
provides help. What an individual is not willing or not able to will by him-
self, the free market entices him or even forces him to do. Indeed, the free
market forces individuals to pay attention to the needs of others, because it
is only in so far as one produces goods and services wanted by others that
one receives a claim to a share of the social product through which one can
satisfy personal needs (PR, # 187).
One can thus find in Hegel at least two very different arguments in fa-
vor of the free market, because it is an institution which promotes freedom,
the ultimate value of human beings, in two ways. First, the free market
provides collectively the goods and services to satisfy the needs of its
members and it does so in a more efficient way than if everybody were to
produce for him or herself. Second, it entices or forces people to pay at-
tention to others, and thus it helps individuals towards their social destiny.
This summary of the main justification of the free market makes it clear,
however, that the free market cannot be the highest social institution. In-
deed, the two forms of freedom provided by the free market are provided
by means of a threat. It is therefore not by means of a voluntary decision
that freedom is augmented in the free market. Clearly, this must have con-
sequences. It is to these consequences that I now turn.

VI. Beyond Internal Restrictions of the Free Market

My remaining task is now to see what the consequences are of the pres-
ence of a threat or of the lack of voluntary participation in the free market
and how these consequences can be remedied.
The main consequence of the fact of guiding production by means of a
threat is that the optimum reached by the free market is an optimum re-
sponding to that threat. The optimum that the free market strives for is
therefore not the optimum optimorum.
At least two major problems emerge when one compares the optimum
that the free market aims at with the theoretical optimum optimorum. The
first major problem is that of the provision of public (collective) goods.85
As is well known in economic literature, one problem with (pure) public
goods is that, often, no individual has an incentive to buy or provide these
85
For an excellent summary of Samuelson's views on this problem and a discussion of the
whole issue of public goods see Head 1974, 68 ff. The significance of the concept of public
good is further defended and elaborated in chapter 6 of this book. I there analyze in detail
both the Samuelson and the Olson approach.
84 4. The Economic Order: A Human, Not a Natural Institution

goods, and even less to buy or provide them in the optimal amount. This
problem of public goods provision is addressed by Samuelson, who gives
the government the task of making cost-benefit analyses about public
goods and use the power of taxation and the legal power of pre-eminent
domain to implement the supposedly economically justified public goods.
Olson addresses a second problem with public goods: the fact that a
public good (called by Olson a collective good) can be enjoyed by differ-
ent people without the owner of the collective good being able to exclude
these others from enjoying the benefits of the collective good (Olson 1968,
14–15). Because other people can so easily become “free riders” by enjoy-
ing the collective good might not be bought or might not be bought in op-
timal amounts. Olson sees the solution in the mobilization of the group in-
terested in the public good such that they are willing to make contributions
to the organized group which promises the provision of the public good.
Olson points out that if mobilization succeeds there is the likelihood of
over-provision (there is a feast). If the mobilization does not succeed there
is under-provision (there is famine). Olson suggests that if there is under-
provision of an important public (collective) good the government might
create laws which provide the necessary incentives for the interested group
to mobilize itself (union shop or closed shop legislation) (Ibid., 68).
Both Samuelson and Olson concede that the provision of public goods
is not necessarily optimal. Hence, there is room for a prudent government
role in the provision of public goods, which we will discuss in more detail
in chapter 6 of this book.
The second major problem with the free market derives from the fact
that the threat inherent in the free market operates only at the micro-level.
Thus, macro-events are not controlled by the threat of the free market. It is
as if the market turns a blind eye to these events. The most important such
macro-phenomenon is the business cycle which creates unemployment and
idleness of productive resources.
The purpose of the economic order is to liberate individuals from the
fact that resources are scarce. In order to promote this form of liberation
for the whole community, the neo-liberal doctrine accepts the burden of
free competition including its inherent threat, e.g., the threat of starvation
or bankruptcy if one does not pay attention to the demands of others. But
now we hit upon an argument that shows us that the threat of the free mar-
ket is in some sense blind, as in dealing with business cycles. Accepting
the argument of the neo-liberal doctrine that efficiency justifies the imposi-
tion of an institutional mechanism (the free market) on individuals, do we
not have to argue that the government must look for a corrective mecha-
nism in order to curtail the inefficiencies created by the business cycle?
 VII. Freedom and the Free Market 85

Such an argument brings us from neo-liberalism to Keynesianism.86 The

difficult question in that transition, though, is to know whether
Keynesianism can be successfully welded to a free market economy with-
out destroying a vital mechanism of the free market itself, i.e., price stabil-
ity (Ver Eecke 1975 b, esp. 444).87

VII. Freedom and the Free Market

One more point needs to be considered. There are individuals who, be-
cause of mental or physical disabilities, are unable to participate competi-
tively in the free market. Just as other individuals, they have a potential
freedom that requests realization. The relationship between freedom and
economic goods and services is such that, in general, family capital is in-
sufficient to guarantee the freedom of disabled or handicapped persons in
contemporary society.
Must the freedom of disabled or handicapped persons be sacrificed in
order to satisfy the impersonal requirements of the free market, whose pur-
pose is to increase the possible freedom of all?
In order to approach this problem, I would like to make use of an anal-
ogy. First, let us recall that we accepted the neo-liberal doctrine that the
justifying ground for the free market is efficiency. Let us further recall
that the burdens imposed in the name of efficiency cannot be justified by
efficiency itself but need a deeper form of justification. We found such a
justification in the concept of freedom. Let me now compare the relation-
ship of the free market to the concept of freedom with a tree and its roots.
As for the relationship between a tree and its roots, one can accept the
proposition that in order for us to protect and nurture the tree, one needs to
feed and nurture the roots of the tree. One cannot hope to have a healthy
tree if one allows its roots to be damaged or to be poisoned. Analogously,
one has to say about the relation between the free market and the concept
of freedom that one cannot hope to promote the free market without nur-
turing its foundation, i.e., freedom.

86
Keynes argues that the free market can have several points of equilibrium, only one of
which includes full employment. Thus, unemployment is a distinct possibility within the
free market (Keynes 1965, 26).
87
Since I wrote these ideas the economic profession and policy makers have become more
convinced of the importance of price stability and have found ways to combine the ap-
proach advocated by Keynesian theories with methods for keeping inflation better in check,
as reflected in substantially lower average global inflation rates than two decades ago with-
out crimping economic growth.
86 4. The Economic Order: A Human, Not a Natural Institution

When the promotion of the free market and the promotion of freedom
come into conflict, it is, therefore, short-sighted to promote the free market
at the expense of freedom. On the contrary, the impersonal requirements
of the free market should not be promoted at the expense of freedom.
In order to help us see clearly how one should understand a conflict be-
tween the free market and the concept of freedom, I would like to look to a
similar conflict, the conflict between the legal system and freedom. Let us
restrict ourselves to the problem of property in the legal system. In the
first section of this chapter, I appealed to Hegel to demonstrate the relation
between property and freedom. Property was demonstrated to be a re-
quirement of freedom that needs to be external in order to be real.
It is now possible that within a society with property rights, there is,
from time to time, a person threatened with starvation. Such a threat is an
ultimate threat to the freedom of that person. The situation presents us
with a conflict between life and property. When the conflict is seen in
those terms, one does not have the means to solve the conflict. One, first,
needs to relate life and property to another concept that can be presented as
the foundation of both. Freedom is such a concept. Indeed, property is
seen as a first embodiment of freedom, whereas life is the source of free-
dom. Thus, in a conflict between life and property, there is a situation in
which “there is on the one hand an infinite injury to a man's existence and
the consequent loss of rights altogether, and, on the other hand, only an in-
jury to a single restricted embodiment of freedom.” Thus Hegel concludes
that property rights cease if the enforcement of such a right threatens the
life of another (PR, # 127).
Can one now argue on the basis of analogy that the requirements of the
free market cease when they threaten the viability of the life of mentally or
physically handicapped persons?88
At first sight, it looks as if the analogy with the tree and the legal system
holds. Indeed, the tree, the legal system, and the free market do not have a
life of their own. Reference must be made to the roots of the tree or the
concept of freedom for the legal system and the free market. Our argu-
ment thus takes the following form: just as one cannot destroy life for the

88
Sen makes a similar argument when he says that property rights cease in the face of mass
starvation (Sen 1985, 5–6). The general argument that property rights cease in the face of
something foundational to property (in Hegel’s view: freedom) has affinities with the
“functionings and capabilities” approach developed later by Sen and further elaborated by
Nussbaum. According to this view, a just society must provide all individuals with the
means to reach and develop certain important functions and capabilities. Financing this
goal can only occur by some form of taxation which means taking away from some what
otherwise would have been their property. A summary of the “functionings and capabili-
ties” approach can be found in the review, by a moral philosopher, of Nussbaum’s book
Women and Human Development (Hausman 2001).
 VII. Freedom and the Free Market 87

sake of maintaining one objective embodiment of freedom in the legal sys-

tem, so one cannot make the realization of freedom of the handicapped
impossible for the purpose of realizing a system created to further freedom.
This reasoning parallels the original analogy: one cannot hope to maintain
a healthy tree if one destroys the roots of the tree.
Upon further reflection, the relation between the claims of the free mar-
ket and the claims of the handicapped seems to be more complicated.
Hegel gives at least two further arguments that must be considered when
studying the conflict between the principle of the free market and the
claims for support of underprivileged persons.
The first additional argument concerns the idea that giving underprivi-
leged persons support deprives those persons of the self-respect and self-
esteem that are the reward of earning one's own living (PR, # 245).
The second additional argument to be considered is the fact that giving
support to anybody without such support being the payment for a contribu-
tion to the social product is a violation of the principle of the free market.
This violation is all the more troublesome because the principle of the free
market (PR, # 245) is not freely accepted by the members of society. In-
deed, the neo-liberal doctrine teaches us that everybody has a selfish inter-
est in trying to escape the burden of the free market, while advocating that
such a burden be imposed on others. Supporting the underprivileged can
thus be experienced as a form of betrayal which the state imposes upon its
members.89
Do these two arguments nullify the original argument in favor of the
claim for support of the underprivileged? One must accept, at least, that
these two arguments build a solid case for limiting the open-ended claim
for support. The two arguments teach us something more: a society cannot
hope that support for the underprivileged within a free market system will
necessarily lead to an increased spirit of belonging or of community. In-
deed, those who receive support are deprived of the self-respect typical of
successful participation in the free market. Those who are asked to sup-
port the underprivileged may feel betrayed because the state does not apply
the threat of the free market to all. Thus, people can become resentful. A
welfare state therefore has seeds of destruction in its own soil. Still, these
two arguments do no more than limit the claims and point to an inherent

89
The experience of betrayal can easily lead to resentment for either one of the following
subjective reasons: 1. a feeling of unjustified deprivation of some pleasures one could have
gotten from the money that was taxed away to support the needy. 2. a sense of having been
unjustifiably denied the rights to one’s own resources. 3. the experience of imposed unfair-
ness because one is excluded from the protection from the harshness of economic life that
others receive. I am grateful to George G. Brenkert for suggesting the different mecha-
nisms that can create resentment to welfare measures.
88 4. The Economic Order: A Human, Not a Natural Institution

danger of the welfare state. These two arguments do not undermine the
basic connection established between freedom and the free market. As
such, I wish to affirm that the ontology of the free market discovered by
the neo-liberal school lays the foundation for a justification of some ac-
tions of the welfare state (Winfield 1990, 183).

Conclusion

The neo-liberal doctrine helped us to see, correctly, that the economic do-
main is not to be understood as a natural system. This insight led us to the
argument that economics has an inherent connection with ethics. That
connection was demonstrated most clearly in the analysis of property and
in the analysis of the problem of public goods. The force used by the state
to transform possession into property was justified by means of the con-
cept of freedom. Similarly, the Samuelsonian and Olsonian approaches to
the provision of public goods leave an opening for a legitimate role of the
government for any society trying to approach a theoretically proven eco-
nomic optimum.
Property and public goods are two concepts that are crucial in economic
theory. In as much as these concepts are tied to the use of force by the
state, economics cannot be separated from ethics. This insight led us then
to explore the transition of the neo-liberal doctrine into the justification of
the welfare state. Our exploration led to the conclusion that the justifica-
tion of the free market implies the acceptance of some form of welfare
state. At the same time, I hit upon an argument that demonstrates that the
welfare state violates the basic principle of the free market.
I would like to end this chapter by explicitly formulating this uneasy
paradox: the free market philosophically implies the welfare state even
though this welfare state is a violation of the free market principle.
 Section III

Tightening the Argument

A Philosophical Dialogue with Economists
5. The Concept of “Merit Good” and the History
of Economic Thought

Abstract

The purpose of this chapter is to defend the concept of “merit good” and to
expand its application. This is achieved by using a Kantian argument ap-
plied to the writings of foundational economists such as Adam Smith and
Henry Simons as well as Walter Eucken in the German literature. As a re-
sult, the concept of “merit good” is used to classify and to argue for a
number of governmental tasks such as the institutional arrangements
needed to make a free market economy work efficiently and in a humane
way. Methodologically, this paper connects economic theory, the history
of economic thought, and institutional economics, thereby demonstrating
that economics is unavoidably intertwined with politics.
The necessity of politically imposed institutional arrangements for the
economy to function well and humanely demonstrates the validity of
Hegel’s claim that the economic domain is an ethical arrangement.

I. The Problem

Fifty eight years ago, Richard A. Musgrave introduced the concept of

“merit wants” (1956, 333–4).90 A decade and a half ago, in a talk for an
international conference on the problem of “merit goods,” John Head
complained that:

it might perhaps have been expected that the merit wants concept would, by
1987, be showing all the usual signs of maturity in the evolution of an eco-
nomic concept. Simple questions of definition or interpretation should on
this reckoning long since have been resolved, and a broad consensus would

90
One can find most of the references to the concept of merit good in one anthology: Ver
Eecke 2007.
92 5. The Concept of “Merit Good” and the History of Economic Thought

typically have been reached on fundamental analytical issues relating to

normative status and policy relevance. The treatment of the concept in the
standard textbooks would by now be routine and highly uniform. In the
case of its more celebrated twin, the social want or public good, this familiar
process has indeed occurred and has long since appeared substantially com-
plete.

As compared with social wants, however, the merit wants concept raises
methodologically much more difficult and controversial issues symbolizing
as it does, for the public finance literature, many of the doubts and reserva-
tions which have been expressed over generations by economists of varying
political persuasions regarding the ultimate normative authority of the con-
sumer sovereignty principle. On these issues the views of economists have
traditionally seemed poles apart. (1990, 211)

The main purpose of this chapter is to restart the discussion of the con-
cept of “merit good” by demonstrating not only that Musgrave’s original
intuition was correct, but by also demonstrating that the concept is much
more broadly applicable than Musgrave himself envisioned. The accep-
tance of my broader interpretation of the concept of “merit good” involves
a paradigm shift that Musgrave did not fully realize. It requires a shift
from an exclusive individualistic view of economics to a socio-economic
viewpoint, in which political and institutional arrangements are understood
to have a crucial impact on economic performance. If my thesis is ac-
cepted, it will be evident that it is unfortunate that the introductory text-
books in economics largely omit the concept of “merit good.” It will also
be evident that it is deplorable that the discussion of the merit good prob-
lem has become sparse in the literature, more sparse in the English eco-
nomic literature than in the German one. Much still needs to be discussed
about the methods of economically analyzing problems of merit goods.
But let us start from the beginning.
While writing an article in 1956 about the theory of governmental
budgets, Musgrave discovered an argument for ethical concepts in eco-
nomic thinking by introducing the concepts of “merit want” or “merit
good” – i.e., areas in the economy where the government is justified in in-
terfering with the preferences of individuals (1956, 333–4).91 In that arti-

91
In a recent autobiographical essay, Musgrave writes that his early training in German
public finance and in German theory of the state made him sensitive to a domain in eco-
nomics that could not be handled by the two concepts based on individualistic assumptions:
private and public goods. Musgrave there conceptually acknowledges that economics
should be socio-economics, and must include reflections on political and institutional ar-
rangements. Consider this quotation: “Admittedly difficult to define and dangerous to en-
tertain, communal concerns have been part of the scene from Plato on, and my concept of
merit goods (applicable to private and social goods alike) was to provide a limited opening
 I. The Problem 93

cle, Musgrave starts by arguing that the government has three roles to play:
a service role, a distribution role, and a stabilization role.
In its service role, the government has to undertake the production of
public goods in an optimal way, and it has to find a means of financing that
is equally optimal. The financing method takes the form of a tax system.
The difficulties which have to be surmounted to accomplish this double
task are well known.92
In its distribution role, the government has to ensure that the incomes of
citizens are allocated in an optimal way. Taxation and monetary transfers
are a technically efficient manner of doing this. The main question for the
distribution role concerns, however, not the method, but the amount of re-
distributing that is to be done. Musgrave calls this a problem of social
choice. Together with many contemporary economists, he considers this a
non-economic problem, i.e., a problem that cannot properly be addressed
by economic methods of analysis. The stabilization role consists in the
government creating the correct aggregate demand for the creation of full
employment without inflation. This role is also known as the govern-
ment’s duty to avoid the negative consequences of the business cycle, par-
ticularly those of economic recession and depression.
As a pedagogical device, Musgrave imagines that these three tasks are
performed by three separate departments of the government. He also
imagines that the three tasks are performed simultaneously. He further
supposes that the funds credited and debited to each of these three depart-
ments are sent to a computing department, which ensures that each person
receives a credit (in the form of a check, for instance), or a debit (an obli-
gation to pay a certain amount of taxes).
But at the end of his article, Musgrave admits that the government per-
forms certain economic activities that cannot be classified neatly in terms

for their role” (Musgrave 1959 and 1987). “Dutiful performance of civil service remains a
constructive concept, as does that of responsible public leadership. Though they now tend
to be ridiculed, both these alternative modes are essential to make democracy work. Nor
are issues of entitlement and distributive justice reducible to principles of exchange, issues
which have to be resolved before that mode can be given its role. The broad-based roots of
the German tradition, its linkage to the theory of state and to fiscal sociology (Musgrave
1980) helped to provide awareness of these issues” (Musgrave 1993, 66–7). Still, Mus-
grave often tried to limit the applicability of the concept of “merit goods” in his economic
writings (Musgrave 1987).
92
Economically optimal pricing for public goods requires that the same good have a differ-
ent price for different consumers who value the same item differently. Thus, toll booths
charge trucks and regular cars differently. Theoretically, the differentiation should not stop
at groups. If the individuals within these groups have a different evaluation of the item,
then these individuals should be charged a different price. The problem is that it is difficult
to know the true evaluation of items by individuals. For a more detailed analysis of the
problem, see chapter 6 in this book.
94 5. The Concept of “Merit Good” and the History of Economic Thought

of these three functions. He names two such activities: free medical

treatment for the poor and subsidies for low-priced housing (1956, 341).
These two examples belong, on the one hand, to the service role because
they produce a public good. But this service represents, at the same time, a
form of redistribution, because not everyone is entitled to free medical
treatment, and not everybody can receive grants for housing. Only a cer-
tain class of people is entitled to them. The two cited examples seem,
therefore, to be economic activities that belong simultaneously to two gov-
ernment departments: the service and the distribution departments.
Musgrave tries to solve this problem by entertaining the idea that these
two examples are cases of pure redistribution. Considered as forms of re-
distribution, the supplying of free medical treatment and grants for low-
cost housing become comparable to monetary transfers, combined with an
additional limitation imposed on the free choice of the recipients as to what
can be done with this money. This kind of redistribution thus does not re-
spect the sovereignty of the consumer's wishes (in this case the wishes of
the poor, the ones receiving subsidies); on the contrary, it imposes limita-
tions on their choices. Musgrave's solution, however, creates a new prob-
lem: thus classified, these economic activities seem to disregard the nor-
mative economic maxim of consumer sovereignty. He tries to soften this
new problem by asking whether or not such a limitation upon consumers
should, as a matter of course, be condemned. Musgrave does not believe it
should because consumers sometimes make irrational choices. They pur-
chase a second car or a second refrigerator before ensuring that they have
adequately prepared for the education of their children. Goods for which
the government justifiably restricts the choice of consumers deserve a spe-
cial name. Musgrave calls them “merit wants (goods)” (Ibid.).
In his later publications Musgrave often comes back to the problem of
merit goods. Further examples of merit goods are free education and free
school lunches (Musgrave 1959, 13; 1987, 453). The examples of compul-
sory inoculation and all subsidies in kind could be added. In like manner,
we could take as examples of demerit goods sumptuary or “penalty” taxes
on liquor (1959, 13) and tobacco.
Beginning in 1959 with the publication of The Theory of Public Fi-
nance, Musgrave takes an important step by providing a definition of the
concept “merit goods” that is independent of his own theory of public fi-
nance. A merit good is defined as a good which is so important that when
the competent authorities are dissatisfied with the level of consumption in
the free market, they can intervene, even against the wishes of consumers
(Ibid.).
 I. The Problem 95

Musgrave does not feel very comfortable with this new concept. He
tries to find different kinds of justifications for the concept of merit good,
but he admits that the term remains problematic.93
Charles McLure, on the other hand, has no such ambiguous attitude to-
wards the concept of merit good. He states plainly that the concept has no
place in a normative theory of public finance (1968, 474, 482) and that our
Western economic theory knows only one norm: the wishes or preferences
of individual consumers. One of the tasks of economic theory, for
McLure, is to point out what has to be done to satisfy these wishes as much
as possible. This is normative thinking. When economists create norma-
tive theories about government finance, they have to remain faithful to this
goal, i.e., the goal that government should spend money in order to satisfy
the wishes of individual consumers as efficiently as possible. However,
when economists introduce the concept of merit good, he says, they try to
find out how they can get around the wishes of consumers. They try to
find ways of violating the fundamental axiom of free-market economics.
Such thinking – i.e., thinking about merit goods – has, therefore, no place
in normative economic thinking, according to McLure. He further states
that the government often denies the legitimacy of consumer wishes.
Economists are allowed to describe this, but they are not allowed to in-
clude it in their normative thinking.94

93
I do not address here the difficulties that Musgrave encounters in trying to differentiate
merit goods from public and private goods. Sometimes, he seems to think that merit goods
are only applicable to public goods. At other times, he seems to think that merit goods are
private goods only. His final position is that merit goods can be both private and public
goods (1993, 66–7). I do not address here the problem of the multiple definitions that
Musgrave seems to have entertained, which is discussed in Allan G. Pulsipher (1971/72,
278–9). My position is that Musgrave has always rejected a pure authoritarian provision of
merit goods, and that he always thought that merit goods were more than a correction of
consumer wishes. I understand Musgrave to say that “correction of consumer wishes” cov-
ers but a subclass of the merit goods, the total class being better defined as “intervention in
consumer wishes.” For a documentation of these two problems in Musgrave's texts, see
Andel 1984, 631–7). Head claims that Musgrave defines merit goods as “the need to cor-
rect individual preferences” (1966, 216). This claim is disputed by, among others, McLure:
“Thus by asserting imperfect knowledge to be the heart of merit wants, Head seriously mis-
interprets Musgrave” (1968, 477).
94
In an international conference on the problem of merit goods McLure took a more flexi-
ble position (1990, 185). In that same conference, a whole section was devoted to “Irre-
ducibly Social Goods.” This paper by Charles Taylor and the comments by Robert
E.Goodin, John Broome, Frank Jackson and Peter Gärdenfors are published as part of a
book on the conference (Brennan and Walsh, 1990, 45–96). Some of the authors defend ir-
reducibly social goods (merit goods), others reject it, still others believe that it is more im-
portant to see the multiple ways in which a good can be social. Clearly, this conference did
not produce agreement on the question of the legitimacy of the concept of merit good.
96 5. The Concept of “Merit Good” and the History of Economic Thought

The contrast between Musgrave's and McLure's ideas provides an excel-

lent opportunity to situate ethical thinking in the context of economic
thought and to demonstrate anew that economics is in fact socio-
economics, requiring explicit reflections about political and institutional
arrangements.. Musgrave discovers governmental activities which ignore
the wishes of consumers in connection with some goods. McLure argues
that the concept of merit good has no place in normative economic think-
ing. Musgrave admits that he does not have sufficient justification for his
new concept but refuses to argue that all intervention by the government
which fails to satisfy individual wishes is illicit.
If we agree with McLure, we admit that ethics involves a kind of think-
ing which is not immediately relevant to economic thinking.95 If we fol-
low Musgrave, we implicitly accept the thesis that ethics can play a role in
economic thinking, although we may momentarily lack sufficient argu-
ments.
Clearly, we are here confronted with a major difficulty. As we are deal-
ing with a normative problem, it would be appropriate to consult philoso-
phical thought (Ver Eecke 1984, 198–202). But first, I wish to sketch the
broader context of the problem.
Economic theory speaks about private goods (sugar, bread, oranges) and
public goods (national defense, pure air, bridges, roads) (for a good synop-
sis of the problem of public goods, see Head 1974, chapter 3). Musgrave
adds a third concept: merit goods. Economic thinking, per Musgrave's
view, thus embraces three kinds of goods. Western economic thinking
gives priority to the concept of private good, because this concept is di-
rectly connected to the wishes of consumers. The free market is the insti-
tution through which private goods are produced and (hopefully) distrib-
uted in an optimal way. The two other kinds of goods (public goods and
merit goods) are exceptions to the idea of private goods. Therefore, we
can call them non-private goods. Since these non-private goods are usu-
ally supplied by means of the political system, we can give them another
name: political economic goods.96
It is important to clearly understand the difference between the two
kinds of goods provided by the political system. Public goods are political

95
Based on the work of Hausman and McPherson one could make an ad hominem argu-
ment against McLure’s position. Hausman and McPherson argue that giving absolute au-
thority to individual preferences in order to legitimate economic outcomes is an ethical po-
sition itself. Furthermore, it is not defensible neither theoretically, nor politically nor for
the forum of common sense. Indeed, a position like McLure’s implies that one cannot dif-
ferentiate between “expensive, anti-social [preferences], or [preferences that are] the result
of false beliefs, manipulation, or problematic psychological processes” (Hausman and
McPherson 1966, 83). They must all be considered equally valid.
96
This name was suggested by H. Briefs.
 I. The Problem 97

economic goods provided by the government with the intention of respect-

ing the wishes of consumers. The consumers need help because public
goods have technical (factual) characteristics that make it difficult for indi-
viduals to acquire them in an optimal way. Merit goods, on the other hand,
are political economic goods which the government provides by a method,
or at a level, which disregards the wishes of consumers.97
The above argument allows us to assert that economic theory needs
three, and only three, concepts to be complete. Indeed, there is the norma-
tive concept of private goods, and in my view, two reasons, and two only,
why a good might be non-private: a factual constraint and a value judg-
ment.98 The factual exception relates to the fact that some goods can be
consumed by different consumers simultaneously. These goods are con-
ceptualized as public goods (e.g., a light increasing safety in an alley). The
other exception is that some goods are judged to have special moral value:
they are judged to be very beneficial or they are judged to be obnoxious.
These judgments give rise to the concept of merit good (e.g., education,
which is made obligatory) or its opposite demerit goods (e.g., liquor on
whose consumption sin taxes are imposed).
Let us further clarify the difference between goods that are non-private
because of reasons of fact and those that are non-private because of rea-
sons of value. Economic theory argues, with respect to public goods, both
that factual characteristics are the reason why individuals need help and
that this help can be given while respecting the wishes of consumers.
There are two factual reasons a good might not be a private good: non-
rivalness in consumption and impossibility of exclusion.99 The factual
properties of these goods are, therefore, the reason they cannot be consid-
ered private goods and, as a consequence, it is not optimal to provide them
through the free market.
A completely different exception to private goods occurs when a value
judgment is passed that stipulates that the free market does not ensure a
desirable level of consumption. This is the case of Musgrave's concept of
(de)merit goods. Because value judgments about merit goods are not made

97
Economists are aware that some preferences are problematic. Thus, John Head points to
lack of reliable knowledge (lack of information or presence of persuasive and misleading
information) or the presence of irrationality in the consumer as leading causes for problem-
atic preference choices (Head 1974, 217–220).
98
The above argument implies that economic theory needs at least three sub-concepts for
the main concept of economic good. For a study demonstrating the practical importance of
using and distinguishing these three concepts see: Godwin (1991, 415–29). An alternative
way of introducing value judgments (commitments) in economic theory is Sen's proposal
for a hierarchy of preference orderings (Sen 1977, 326–44).
99
For a further discussion of these characteristics of public goods see chapter 6 in this
book.
98 5. The Concept of “Merit Good” and the History of Economic Thought

by individual consumers but by representatives of society (government of-

ficials), McLure claims that they should not be part of normative economic
thinking, which is itself based on respect of the sovereignty of individual
consumers.
The problem, therefore, is: should the concept of merit good belong to
normative economic theory? If it should, what are the arguments in favor
of its inclusion?

II. Justification of the Term “Merit Good”

McLure accepts the proposition that only one method exists for justifying
something economically, namely, compliance with the wishes of individ-
ual consumers. When we look at the history of philosophy, we see that
one of the major philosophers, Immanuel Kant, built his philosophy on a
totally different method of thinking; namely, the transcendental method,
which involves the search for conditions of possibility.
Kant's method of thinking consists of focusing on two important facts,
and then looking for the conditions of the possibility of these facts. The
two facts he was concerned with are the existence of scientific laws and
the existence of a feeling of moral obligation (Kant 1956, 166). He deals
with the first in the Critique of Pure Reason and the second in the Critique
of Practical Reason. In the Critique of Pure Reason, Kant argues against
the British empiricists, who assert that knowledge of the world is based
solely on sensory perception. Kant asserts that when we look at a table
from three different points of view and thus produce three sensory obser-
vations, but we claim that there is only one table. Kant asks what the con-
ditions of possibility are for asserting that we only see one table even when
we have three sensory impressions. He answers that it is because we live
in a world of objects and not in a world of sensory impressions. For Kant,
an object is the combination of observed impressions together with the
categories of the mind. For example, the table is an object, because we
consider it to consist of its observed front together with its postulated back.
Or again, due to the category of causality, any material object is the ob-
served phenomenon, together with the postulated continued existence of
this observed phenomenon over time.
Kant's argumentation allows us to affirm that if one accepts the idea that
there is only one table, then one must accept the idea that even though we
possess three sense impressions, the real, true perception is the result of the
combination of these sense impressions with the categories of the mind.
Hence, one must abandon empiricism as a theoretical explanation.
 II. Justification of the Term “Merit Good” 99

Kant gives us here a new type of method of justification: to look for

possibility conditions by means of logical reasoning (Ibid.). This is the
same reasoning used in daily life. When my children are thirsty I tell them
that they can find drinks in the refrigerator. Whether they feel like it or
not, the possibility condition for ending their thirst is for them to get the
drinks out of the refrigerator themselves.
In a similar way, one can assert that there are at least two ways to prove
that something possesses economic justification. The first way is the fa-
miliar way of arguing: that which fulfills, in the best manner, the wishes of
the consumers, as they see it, is economically justified. The second way
follows the Kantian method of thinking: if citizens and consumers want
something, they also have to accept its possibility conditions. They have
to accept them whether they want to or not. This second kind of reasoning
rests on the insight that there are logical relations in reality. These logical
relations have validity, even if consumers do not like them.
We shall call merit goods those goods which are the conditions of pos-
sibility of something that is desired by the consumers, even and especially
if these merit goods or services themselves are not preferred by consum-
ers.100 This method of arguing has the advantage that we can set limits to
merit goods. The government cannot thwart the wishes of the consumers
whenever it feels like it: the government needs arguments. And these ar-
guments set limits to government actions. The government might be an-
noyed with corporations and might want to punish them. The government
cannot punish them because it is annoyed with them. It can punish them if
the courts establish that they violated, for instance, anti-trust laws, which I
interpret as laws promoting efficient production, which in turn I consider a
merit good.
If my philosophical reasoning is correct, it means that economic think-
ing necessarily has to propose that the government should perform eco-
nomic activities which interfere with the wishes of some consumers. Let
me restate my thoughts in a different way. If my philosophical reasoning
is correct, we can assume that economic thinking will propose economic
activities to the government which will respect neither the Pareto principle
nor the consumer sovereignty principle (examples are banking regulations
and anti-trust laws). This means that economists will recommend to the

100
Such a defense of merit goods leads to the distinction between a potential and an actual
merit good. A potential merit good is a good which is a possibility condition for something
that consumers want, but which is under current circumstances also desired by the consum-
ers. A potential merit good becomes an actual merit good if it is not wanted itself. This
distinction is similar to the one used by Folkers when he distinguishes between merit need
and merit good (1974, 23). McLure’s definition of merit goods, on the other hand, is re-
stricted to actual interference with consumer preferences (1968, 479).
100 5. The Concept of “Merit Good” and the History of Economic Thought

government some economic activities which might cause disadvantage to

some citizens, and might favor others. Economics must therefore neces-
sarily become political economy or socio-economics, where the first label
stresses more the political dimension and the second the social dimension
involved in providing (de)merit goods (Smith, 1937, 247–50, 651-2, 767–
8; Schumpeter, 1954).
Someone might argue here that the provision of public goods sometimes
has the same consequence of interfering with consumer wishes, as in the
case of the expropriation of land for the creation of highways. But, this
comparison between public and merit goods is unwarranted. In the case of
public goods, economic theory of optimal allocation requires that those
who experience negative utility from its provision must be compensated.
Where compensation is not given, because it is impractical or because the
consumer is assumed to exaggerate the amount of disutility (strategic be-
havior), the theory still requires us to regret the inconvenience of the dis-
utilities, because the provision of public goods intends to improve the
situation of everybody. Merit goods are another matter. The theory of
(de)merit goods does not include the idea that disutilities have to be com-
pensated. Thus, policies aimed at lowering the rate of smoking need not
include compensation for the inconvenience imposed on smokers. Simi-
larly, antitrust legislation does not include compensation for the restric-
tions imposed on monopolists. Disutilities for some are intended in the
very concept of merit good (Musgrave & Musgrave, 1973, 80–81). That
an economic concept includes the intention of imposing disutilities on
some gives us an opportunity to situate, systematically, ethical problems
within an economic framework.
In the second part of this chapter, I wish to articulate what the different
kinds of merit goods are. It is interesting to discover that these different
kinds of merit goods are already present in the history of economic theory.
We will discover these different types of merit goods defended by Adam
Smith, the neo-liberals, Keynes, and the contemporary theories of the wel-
fare state.

III. Justification of the Different Kinds of Merit Goods

The sole method of justification that we will use is implied in the question:
what are the conditions of possibility of a given thing that the citizens, as
economic actors, wish?
 III. Justification of the Different Kinds of Merit Goods 101

Western citizens as economic actors wish first for a free market.101 A

free market cannot exist as a factual arrangement if certain conditions are
not fulfilled. Adam Smith thought about this intensively in Part V of his
Wealth of Nations. As conditions for the possibility of the free market
Adam Smith names the following: (i) national defense; (ii) a legal system
which protects property, enforces contracts, and is executed by judges and
politicians; and (iii) bridges, roads, etc., to enhance commerce (653–716,
especially 659, 670, 681–2, 690).
The two first tasks are sometimes mentioned as tasks for the minimal
state.102 These tasks cannot be defended by the public goods argument
alone, because the provision of these goods does not respect, and does not
even intend to respect, the wishes of all consumers. Smith seems to know
this very well when he makes the following statement concerning property
rights:

Civil government, so far as it is instituted for the security of property, is in

reality instituted for the defense of the rich against the poor, or of those who
have some property against those who have none at all. (674)

Furthermore, Smith invokes value judgments for the justification of

these governmental activities, a move which would be superfluous or out
of place if one used the argument of public goods. Consider Smith's
statement:

Even though the martial spirit of the people were of no use towards the de-
fence of the society, yet to prevent that sort of mental mutilation, deformity,
and wretchedness, which cowardice necessarily involves in it, from spread-
ing themselves through the great body of the people, would still deserve the
most serious attention of government. (739)

Smith also makes an appeal to a second value judgment when he writes:

101
One could argue that the free market is not a good per se, but that it is an institutional or
legal arrangement. Still, I want to maintain that institutional arrangements are produced.
They involve the use of some resources. They result in something that is desired. In as
much as institutional arrangements result in something desirable, they are a good or a ser-
vice. In as much as they require resources they must be called economic goods. Given the
necessity of institutional arrangements, which themselves are economic goods, economics
is thus necessarily socio-economics. This was clearly understood by Schumpeter (1954).
This is also an accepted premise in a recent technical publication (World Bank, 1997) and
in a moral analysis of the different economic systems (John Paul II, 1991, ## 24, 29, 34, 35,
36, 40, 42, 48).
102
The German term is Rechtsstaat.
102 5. The Concept of “Merit Good” and the History of Economic Thought

That degree of liberty which approaches to licentiousness can be tolerated

only in countries where the sovereign is secured by a well-regulated stand-
ing army (668).

With reference to merit goods, as I have been using the term, Smith not
only realizes that the wishes of some consumers are harmed by the mini-
mal state, and that an appeal can be made to value judgments; he also pro-
poses that these goods be financed differently than public goods. Ideally,
public goods should be financed through taxation of the individuals who
benefit from the use of these goods. Furthermore, the amount of the taxa-
tion should be directly linked to the usefulness enjoyed by each consumer.
When a consumer derives more use from a bridge because he drives a
truck, he should pay more taxes than another consumer who derives much
less use from this bridge because he only uses it to ride a bike to his job.
For the goods of the minimal state, however, Smith recommends that an-
other method of financing be used. He proposes a financing method which
breaks the connection between the amount of taxation and the subjective
utility experienced from the provision of the good. Smith proposes that the
goods from the minimal state be financed by general revenue to which
each contributes according to his ability to pay, independently of the utility
he derives from its provision. Appropriately, this method of financing is
called the “ability-to-pay-method” (767).
For me, the violation of the wishes of some consumers, the use of value
judgments, and the recommendation of a different financing method are
three reasons why I do not want to subsume the tasks of the minimal state
(national defense, enforcement of justice) under the concept of public
good. According to my reasoning, I can classify them as merit goods,
since they are the condition for the possibility of the free market as a fac-
tual arrangement. Thus, contrary to most economists, I would not consider
national defense or police protection as examples of pure public goods.
In my analysis of Adam Smith's thought, I implicitly encountered a sig-
nificant ethical problem: the right of ownership. Adam Smith admits that
the protection of the right of ownership is a governmental action taken for
the advantage of the rich and to the detriment of the poor, or for the advan-
tage of those who have property and to the detriment of those who do not
(674). The question now becomes whether this economically necessary
protection of property is ethically justifiable. Marxists answer that the
right of ownership must be limited, more exactly, that the ownership of the
means of production in the hands of private persons must be prohibited.
Western democracies answer by giving non-owners other forms of security
 III. Justification of the Different Kinds of Merit Goods 103

such as unemployment benefits, work accident insurance, the right of un-

ionized protection of wages, and so on.103
We learned about a first kind of merit good from Adam Smith: the
goods and services connected with the idea of the minimal state and justi-
fied by the fact that they are the conditions for the possibility of the free
market.
The free market is not, as Adam Smith says, a natural phenomenon that
would flourish if greedy and unenlightened kings did not interfere. The
neo-liberals104 draw attention to the fact that the free market is a vulner-
able human institution. Many (if not most) participants wish to escape the
rules of the free market because it theoretically prevents the use of power
to increase the benefit from economic transactions (e.g., monopolistic
practices). The endeavor to escape from the free market took a serious
turn in the nineteenth century with the creation of cartels, trusts, and un-
ions.105
The neo-liberals tend to look at the free market, not as a natural fact, but
as a valuable human institution that succeeds in guaranteeing almost auto-
matically the value of economic efficiency. The neo-liberals claim that the
free market is worthwhile, because it promotes that efficiency. They are
also prepared to claim that the government has to do whatever it can to
make economic reality approach the efficiency that the theory of the ideal
free market demonstrates to be possible.
In order to prevent individuals from escaping the discipline of the com-
petitive free market, the state will have to impose measures that violate the
Pareto principle. I call these measures the possibility conditions for im-
plementing the ideal efficiency of the free competitive market. An impor-
tant representative of the neo-liberals is Henry C. Simons, founder of the
Chicago school and author of Economic Policy for a Free Society. In that

103
Hegel argued that property is a first and necessary objectification or embodiment of
freedom. He thereby defends jointly the right to property and the philosophical necessity of
overcoming poverty and destitution. I developed these ideas more extensively in chapter 3,
Section III “The Proper Relation Between State and Economy” and in chapter 4, Section I
“The Function of Property.”
104
The term “Neo-liberal” is a translation of the German term Neoliberalismus, and covers
such diverse groups as the Vienna marginalists, the economists centered around the Ordo
group in Freiburg/iBr, and the Chicago School of Economics. Egon Edgar Nawroth pro-
vides a splendid overview of the doctrines of different German neo-liberal authors (Naw-
roth 1961).
105
Guilds, mercantilism or physiocratic policies all violated the laws of the free market.
These violations occurred, however, before the defense and glorification of the free market
by Adam Smith. The nineteenth century's practices, on the other hand, can be seen as a di-
rect challenge to the presentation of the free market as normatively desirable.
104 5. The Concept of “Merit Good” and the History of Economic Thought

work he assigns the government five groups of tasks, of which four are
significant for us.106
First, Simons recommends two measures in connection with the mone-
tary system. He suggests that the banking system should be based on an
obligatory 100 percent reserve requirement instead of the fractional one
presently in place. He also proposes that banks should lose the right to
convert short-term debts into long-term ones. Both measures would limit
the power of banks to create credit. Simons argues that this is necessary,
because the creation of credit is a major cause of inflation, which deforms
economic activity and leads to inefficiency (1973, 62-3, 78–9).107
Second, Simons argues that monopolies should be opposed by the gov-
ernment. Natural monopolies such as electricity, water supply, and so on
have to be controlled by public authorities. Artificial monopolies have to
be broken up. Production limitations and the creation of artificially high
prices have to be legally treated as crimes. Buyouts of industries need to
be legally limited. The creation of connections between related industries
also has to be prohibited. Thus, the possession of stocks in other compa-
nies has to be limited, as does the possibility of becoming a member of the
board of directors of another company (81–3).
Third, Simons attacks tariffs and subsidies, especially in foreign trade
and agriculture. Only in the case of an “infant industry” does Simons ac-
cept the argument that a temporary subsidy is justified (69–70, 84).
Fourth, Simons recommends that a series of measures be taken to im-
prove the efficiency of commerce. He claims that advertising is useless,
and therefore he recommends that high taxes should be placed on it.108

106
Roughly the same governmental activities were argued for by a group of authors cen-
tered around the German journal Ordo, in Freiburg/iBr. The main theoretical representative
of that school was Walter Eucken (1982, 115-31). The best known public figure of that
group is Ludwig Ehrhard, who was credited with engineering the German economic mira-
cle after the second world war.
107
I am not alone in calling stable monetary policy a merit good. B. Molitor does so too,
even though he calls it a different kind of merit good, i.e., security (1988). I classify secu-
rity concerns (a social safety net) as a fifth kind of merit good and would also put there Mo-
litor’s other examples of protection against work related accidents and obligatory retirement
savings. I believe that one needs different arguments to justify the government’s role in
monetary policy and in providing a social safety net. Therefore, I believe that I am justified
in separating monetary policy and the provision of social security in putting them into dif-
ferent categories of merit goods. Finally, let us point out that Schumpeter, without using
the word “merit good,” stressed the great importance of money by making the banker to-
gether with the entrepreneur responsible for economic development (1969, 95–127).
108
Currently the argument is made that advertisement provides economically useful ser-
vices: it provides information and it helps new products find a quicker acceptance in the
market. It is my opinion that it is within the spirit of Simons's argument that advertising
that is economically useful should be allowed. On the other hand, I also believe that legis-
 III. Justification of the Different Kinds of Merit Goods 105

Furthermore, Simons sees no advantage in the protection of wholesale

prices. He proposes that wholesale prices should be legally accessible to
everyone. Finally, it appears to be important for Simons that consumers
should be better informed. He advocates easily comparable price indica-
tions, and easy quality comparisons between different goods (72, 85 ff.).
Clearly, the neo-liberal program cannot be defended on the grounds of
the public goods argument. Indeed, Simons does not respect the Pareto
principle. He, in fact, makes it clear that he does not even intend to respect
the wishes of those who through their activities diminish or distort the effi-
ciency of economic activities. We are again confronted with a series of
merit goods.
The neo-liberals defend their program with the argument that the com-
petitive free market improves efficiency. A new question now arises: Is
efficiency a value that one should pursue unconditionally? In other words,
can one argue that efficiency is so important that it entitles the government
to use its power to execute the neo-liberal program against the wishes of
individual citizens?
What arguments are there available to defend the proposition that the
government can justly impose the measures defended by the neo-liberals?
In other words, what are the possibility conditions for the neo-liberal pro-
gram to be just?
Here we can call on Kant again. Kantian ethics looks for the basis of
ethical prescriptions, not in a religious faith in God, but in human reason.
As maintained by Kant, living a moral life is living according to the moral
law, in conformity with the demands of reason and out of respect for rea-
son. Both Simons and his German counterpart, Walter Eucken, have pre-
sented their program as rational. Whether their proposals are defensible in
their details is a matter of continuing debate. What is no longer debated by
the majority of academic authors is that the government has a positive role
to play in promoting economic efficiency by fighting inflation, regulating
banking, and fighting monopolistic practices.109 But academic authors are
not the major group of economic actors who are affected by government
regulations that promote fair business practices. Ideally, for Kant, restric-

lation requiring truth in adverting is similarly in agreement with the spirit of Simons's writ-
ings on advertisement.
109
Of course, there is still a debate over the role of the government in economic matters.
The debate now centers around the thesis that market failure is not enough to justify a role
for the government. The “Public Choice” economists have argued that one must still prove
that government intervention will not create bigger failures than the failures created by the
market. However, arguing for a restriction in government tasks is, in effect, agreeing that
there is room for legitimate government tasks even though some authors argue that the gov-
ernment should have no function at all in some areas, such as patent law.
106 5. The Concept of “Merit Good” and the History of Economic Thought

tions on one's freedom should appear rational to those on whom the restric-
tions are imposed.
We are now ready to give an argument for the third kind of merit good.
Rationality of the citizens is a precondition for the government being able
to impose the measures advocated by the neo-liberals with the intention of
reaching the efficiency promised by the free competitive market and hav-
ing these measures accepted by their citizen-voters. How can we hope that
the burdens required for the efficiency of the free market will be accepted
if the citizens’ rationality is defective? In Kant's opinion, rationality is the
condition for the possibility of having binding values. But, this provides
an argument for the support of education in as much as it improves the ra-
tionality of the citizens-consumers. Improvement of educational instruc-
tion for the whole population is therefore a third kind of merit good. This
theoretically postulated third group of merit goods is not without its em-
pirical confirmation. Christian Scheer has argued that the expansion of the
public budget in the latter part of the 19th century in all Western societies
was the result of the expansion of subsidies for education (1975).

Conclusion

The concept “merit good” refers to those economic activities of the gov-
ernment that cannot be justified by the idea that these activities help con-
sumers achieve the satisfaction of their wishes. Such activities are cap-
tured by the concept of public good. Merit goods can be justified, though,
by a Kantian method of reasoning. They can be justified as the necessary
conditions for the possibility of what the citizens of a free market wish.
I have defended three kinds of merit goods: those that are connected
with the minimal state, those which are connected with the neo-liberal pro-
gram, and those merit goods that are connected with the improvement of
the exercise of reason, namely education.
These three types of merit goods are not the complete series. Reason
requires more than micro-economic efficiency. It requires macroeconomic
efficiency across the business cycle, justice, and human dignity. This is
precisely what the contemporary welfare state tries to do with its economic
stabilization programs, its redistribution efforts, and its social programs
 Conclusion 107

such as unemployment compensation measures and social security ar-

rangements.110 For these measures I do not give arguments here.111
I believe, however, that I have given ethical thinking an essential place
in economic theory by providing a method for the justification of the con-
cept of merit good, which was first introduced by the public finance
economist Musgrave. By maintaining the validity of the concept of merit
good, I thus distinguish myself from economists who have tried to reduce
the concept of merit good to characteristics belonging to the concept of
public good.112 My theory is also different from the theory of sociologists
who use social habits as a category to explain the difference in the provi-

110
Many of the examples given by Musgrave are cases of redistribution in kind or cate-
gorial redistribution (obligatory education, free school lunches, subsidized housing, subsi-
dized or free inoculation) and would thus have been treated in that part of the argument.
111
I do that in an unpublished book-length manuscript on merit goods with the tentative ti-
tle: Private, Public and Merit Goods.
112
John G. Head wrote three magnificent articles on the merit good problematic. He is ul-
timately not able to maintain the difference between public and merit goods because he
emphasizes preference correction as opposed to preference interference as the defining
characteristic of merit goods (1966; 1969; 1988). In the latter article, we find the follow-
ing: “This whole line of argument clearly suggests, however, that all social wants problems
can in a fundamental sense be characterized as generalized merit wants problems involving
a hierarchy of ‘higher' and ‘lower' preference orderings in combination with impulsiveness
or weakness of will” (30). For me, public and merit goods need to be justified in a totally
different way. The idea of interpersonal utility interdependence, too, is used by some to
connect public and merit goods (Culyer 1971; Brennan and Lomasky 1983; Brennan 1990).
My thought is that the merit good idea would require, for instance, more redistribution than
interpersonal utility interdependence can justify. Interpersonal utility interdependence can
only justify part of what the merit good idea intends to justify. It therefore remains impor-
tant to continue to distinguish merit and public goods.
Another way to defend the usefulness of the distinction between public and merit goods
is by means of contemporary epistemology. Contemporary epistemology argues that all
human insights are limited. One author captures that insight very pictorially by calling all
human insights “angular truths” (Desan 1972, ch. 3). Some economists reduce or hope to
reduce the problem of merit goods to matters of lack of information, wrong information, or
irrational decisions. Such a view overlooks the angularity of all human insights. When I
make decisions about buying computer software, it is not possible to hope that I as an indi-
vidual could consider the monopolistic aspects of software sales techniques. It is for others
who are better placed to make such analyses, e.g., the anti-trust division of the Justice De-
partment. In my view, as in the view of Desan, it is irrational to expect from human in-
sights more than is reasonable. This opens the door for epistemologically justified conflicts
between individuals and supra-individual organizations. This does not mean that when
there is a conflict the supra-individual organization is always right. It means that one needs
to recognize the existence of real conflicts. The concept of merit good captures such con-
flicts.
An author who understands very well the difference between the concepts of public and
merit good and who, furthermore, understands the ethical dimension of the concept of merit
good is Birger P. Priddat (1992; 1994).
108 5. The Concept of “Merit Good” and the History of Economic Thought

sion of merit goods in different societies.113 Finally, my theory is different

from the theory of those economists and political scientists who are look-
ing to a proper political process (democratic constitutional policies) as the
justifying mechanism for the imposition of merit goods (Mackscheidt,
1974; Brennan & Lomasky, 1983; Brennan, 1990).
A positive result of my view of merit goods is that I am able to create a
conceptual space for the writings of economists who deal with fairness,
subsidies, and financing methods of morally worthwhile projects (Bu-
chanan, 1983). A further positive result is that I am able to distinguish be-
tween public goods and goods defended in the political arena by value ar-
guments. Values provide arguments that justify overruling the wishes of
individuals and must therefore be located elsewhere than in the public
good discussion. If value arguments, stripped of the aspect of public
goods, have a kernel of validity, it is as merit good arguments (e.g., hard-
ened criminals must be executed; public education must be done by
vouchers).114 A further positive result of my view of the concept of merit
good is that institutional economic arrangements can be seen as economic
activities for which there is a conceptual home in pure economic theory.
Institutional arrangements violate the wishes of some economic actors
(e.g., in antitrust legislation) and thus exhibit the characteristic that defines
the category of merit good. No economic activity should be without a
conceptual home. However, my view of merit goods is that it houses
many more economic activities than Musgrave imagined.115

113
Cay Folkers very properly stresses the societal preferences at work in merit goods
(1974). That societal preferences are not always congruent with individual preferences in-
dicates the presence of claims on resources that do not fit into the consumer sovereignty
tradition. Still, for me, the question remains whether or not Folkers’s claim might not have
a more solid justification than the simple statement that merit goods are the expression of
social habits.
114
Malkin and Wildavsky argue that the traditional distinction between public and private
goods should be abandoned (1991). The authors write: “We have seen that it is impossible
to develop a definition of public goods that rests on the technical properties of the thing it-
self. We have also seen that it is impossible to justify government financing of public
goods in a value-free manner. The flaws in public goods theory allow economists to pro-
mote their personal values under the guise of economic ‘science’” (372). By maintaining
both the concept of public and merit good, one can refute the objection of these authors
against the concept of public good, because the presence of value judgments overruling
personal preferences is by definition a merit good.
115
In his interpretation of the concept of merit good, which includes a partial redefinition,
Klaus Mackscheidt observes that the concept of merit good is applicable to domains not
envisioned by Musgrave (1981, 264). Bruno Molitor makes use of a characteristic of Ger-
man language to systematically broaden the applicability of the concept of merit good.
German language allows for the creation of a verb meritorisieren (making meritorious) and
a noun from that verb Meritorisierung (the fact of declaring something meritorious). Mo-
litor thus argues for making the whole area of security a merit good concern for the gov-
 Conclusion 109

Finally, my view of merit goods provides the opportunity to explain cer-

tain anomalies. Take the case of education. Many economists call educa-
tion a public good. The paradox is that the local tax contribution for public
elementary and secondary schools in the United States is financed for 96%
by property taxes.116 Typically, young couples with children do not pos-
sess the largest, most expensive homes. These are sometimes owned by
childless couples or couples whose children are grown. Labeling education
a public good means that the government has an opportunity to help con-
sumers achieve the fulfillment of their wishes by collecting from everyone
what they want to pay for the service in return for the provision of that ser-
vice. Providing education as a public good therefore requires that the gov-
ernment only collect what individuals feel the service is worth to them.
(The government is allowed to disregard strategic bargaining and free-rider
strategies.) The provision of education as a public good thus requires that
the government make individuals pay in proportion to their benefit. How-
ever, the actual financing method of education, violates this rule. Couples
without children but with expensive homes are forced to pay more than
couples with children and less expensive homes. If education can only be
justified as a public good then, conceptually speaking, some people are
forced to pay more than they should, while others are allowed to pay less
than they should. Using force in order to make someone pay more than he
should could be called theft. But, the government uses its taxation power
to force some people to pay more than is conceptually justified. Calling
education a public good exposes its current financing methods as theft.117

ernment (1988). Molitor’s approach allows for two generalizations not present in Mus-
grave’s texts. Molitor can ask the question: what are the conceivable subfields for provid-
ing the merit good category “social security?” Molitor can also ask the question: what are
the conceivable techniques that the government can use to promote a whole category of
merit goods? In a later publication (1989, 59) he creates the concept “Meritorisierungsin-
strument” (means for approaching a good as a merit good). Thus Mackscheidt and Molitor
develop a problem that is much broader than the one addressed by Musgrave when he asks
the question of how one can defend single cases of merit goods such as free school lunches,
subsidized housing, subsidized medical care etc. I therefore feel that both Mackscheidt’s
and Molitor’s writings vindicate my approach of expanding the concept of merit good ac-
cording to its inherent philosophical dimension.
116
Figure is for 2001–02. See publication by US Census Bureau: Public Education Fi-
nances: 2002. http://ftp2.census.gov/govs/school/02f33pub.pdf, Table 4, p. 4.
117
David Schmidtz (1991, XVI,159) makes a similar point when he argues that the public
goods argument does not entail the right of the government to use coercion. If coercion is
to be justified additional arguments need to be given such as survival of society or equality.
Schmidtz seems to be sympathetic to the argument of survival and grants that others might
want to make the argument of equality. In both cases a solid value argument is needed for
justifying coercion. Schmidtz therefore argues, as I do, that the use of coercion in the pro-
vision of public goods can only be justified as a merit good. That requires a different kind
of argumentation than the public goods argument.
110 5. The Concept of “Merit Good” and the History of Economic Thought

In my view, education is partially a public good and partially a merit good.

As a public good, it is proper that the ones having the most immediate
benefit pay the most. This is the case where public colleges request tuition
from students. The citizens of the state all benefit from a literate and edu-
cated population. (In a literate population my medical prescriptions will
not be easily misread and I will not have to pay exorbitant fees for my
pharmacy to hire a literate clerk who can read my prescriptions. In a liter-
ate population the chances of having an illiterate son- or daughter-in-law
are slim, which I assume to be a desirable state-of-affairs for all parents.)
Thus, all citizens may be asked to contribute to financing education. Still,
this argument does not allow the state to charge some individuals out of
proportion to the benefits they receive. Using property taxes to finance
education does tax some individuals out of proportion to the benefits they
receive. Since the concept of public good does not justify such a method
of financing, the government should either abandon that method or look
for another justification. Calling education partially a merit good would
justify such a financing method. Indeed, ability to pay has been a financ-
ing method defended for merit goods. Property taxes can be considered
taxes levied according to the ability to pay method.
The example of education illustrates one last important aspect of my
theory of private, public, and merit goods. In my view these three con-
cepts are all ideal concepts.118 They are more or less realized in all goods.
Thus, in my view, it is incorrect to ask whether a particular good is a pri-
vate, public, or merit good. The proper question to ask is which aspects of
a particular good exhibit characteristics typical of the concept of private
good, of the concept of public good, and of the concept of merit good.119

118
Paul Samuelson introduces the idea of an ideal concept for public goods in defining it as
“consumption goods . . . which all enjoy in common in the sense that each individual's con-
sumption of such a good leads to no subtraction from any other individual's
consumption of that good” (1954, 387). In a subsequent paper Samuelson defends what I
take to be an ideal concept interpretation of the term “private good,” while presumably re-
tracting his ideal concept interpretation of the term “public good.” Consider: “What are we
left with? Two poles [the ideal concepts of public and private goods] and a continuum in
between? No. With a knife-edge pole of the private-good case, and with all the rest of the
world in the public-good domain by virtue of involving some ‘consumption-externality’”
(1969, 108, including footnote 2). Musgrave clearly sees the ideal type argument in
Samuelson's concept of public good (1969, 124, 126–34, 142). I do not see Musgrave as
explicitly conceiving his own concept of merit good as an ideal concept.
119
Birger P. Priddat argues that every public good voted for by a majority against the will
of a minority must be considered as having a merit good aspect for the minority. This merit
good aspect often relates to the financing system disliked by the defeated minority. He thus
implicitly holds two of the theses that I hold: first, a good can be both a public and a merit
good and second, the concepts of public and merit good are ideal concepts that apply to as-
pects of concrete goods (Priddat 1992, 246).
 Conclusion 111

Take the example of bread. Most economic textbooks take bread to be a

private good. I would say that the governmental requirement of providing
printed information about the nutritional content is an interference with the
choices of producers.120 That requirement must therefore be justified as a
merit good aspect in the provision of bread. Similarly, the governmental
prohibition against using sawdust to increase fiber content is again a gov-
ernmental interference. That I now have bread without sawdust or bread
with content labels printed on the package is not the result of market forces
mediating the wishes of consumers and producers. It is the result of gov-
ernmental interference. Bread is thus not a 100 percent private good. It
has private good aspects as well as merit good aspects. Calling the con-
cepts of private, public, and merit good ideal concepts is not just a matter
of philosophical sophistication (of course it is that, too). Seeing these three
concepts as ideal concepts will allow economists to correctly describe the

Norbert Andel gives a different interpretation of the facts that Priddat and I observe. He
sees an interference in both merit and public goods and thus prefers to conceptually group
public and merit goods into one theoretical group: those goods where there is market failure
(Andel 1968/69, 212–3). But Andel provides the observation necessary to maintain the dif-
ference between public and merit goods when he writes: “What can be said with reference
to merit wants is also true for some public goods.” But if something is true for all merit
goods while it is true only for some public goods, then there must be a conceptual differ-
ence between public and merit goods. This is what I maintain, while allowing for the fact
that concrete goods may be both public and merit goods.
Klaus Mackscheidt, also, observed that public goods sometimes have characteristics
typical of merit goods. In order to limit the cases of goods that are both public and merit
goods, Mackscheidt restricts his definition of the concept of merit good by excluding inter-
ferences with individual preferences resulting from a democratic majority imposing its will
on a minority for purposes of providing a public good. Still, Mackscheidt explicitly pre-
serves the two concepts of public and merit (1981, 262–4). In a recent letter, Mackscheidt
discusses situations where a public good (successful inoculation against infectious diseases)
cannot be provided without meritorisation of the public good (provision of subsidies). He
thus reaffirms the idea that the concepts of public and merit good are different. However,
he differentiates the two concepts not purely on the basis of the ideas they capture, but also
on the basis of their extension. Thus Mackscheidt demands from a merit good that it be a
good that is not just a public good, but a private good as well (1997). My view is that the
concepts of public and merit good (and the one of private good as well) can be defined by
their ideational content. The question of how many of the concepts apply to one concrete
economic event is not immediately part of the conceptual problem. This is the state of af-
fairs not only for the concepts of private, public, and merit good but also for those of a
beautiful, just, and good person. In this latter case, philosophers are not bothered by the
fact that a human being can be labeled either beautiful, good, or just or a combination of
them. If it is acceptable that a person can be beautiful, good, and/or just, why is it problem-
atic if concrete economic events are called simultaneously private, public, and/or merit
goods?
120
The positive justification for such government imposed information is to make informed
consumer choice more possible and also to diminish, what common sense would consider,
fraudulent practices.
112 5. The Concept of “Merit Good” and the History of Economic Thought

facts (what kind of a good is bread?) and will allow economists to provide
a justification for methods of taxation which, like current methods of fi-
nancing education, would otherwise have to be rejected as disguised theft.
6. Objecting to a Libertarian Attack on
Governmental Functions in the Economy:
The Concept of “Public Good”

Abstract

Some authors see the concept of public good as nothing but a social con-
struct for two reasons. First, different economists seem to create different
definitions of the concept. Second, different countries treat different ser-
vices as public goods.
I collected and analyzed eighteen different terms used by economists in
order to point to public good aspects. I reduced the eighteen terms to two
crucial ones that allow me to affirm that the ideal concept of public good
points to an opportunity for collective gain, but that the non-exclusion pos-
sibility makes optimal financing difficult. The lack of optimal financing
introduces the problem of whether or not the use of coercion (forced pay-
ment by means of government-imposed taxes) is justified. Alternatively, it
raises the question of whether or not injustices created by the private pro-
vision of public goods (discrimination in club goods) demand governmen-
tal supervision of private initiatives with public goods. These questions in-
troduce value judgments captured by the concept of merit good. Therefore,
the problem of realizing the potential for gain present in public goods has
no unique solution and requires ethical and political judgments. However,
the presence of socio-political considerations in the realization of public
goods does not invalidate the concept of public good itself, which consists
of pointing to opportunities for gains by collective action, whether that col-
lective action is privately or governmentally organized.
This chapter supports Hegel’s claims about the desirability and the pos-
sibility of fruitfully mobilizing the government in order to deal with public
goods or externalities.
114 6. The Concept of “Public Good”

I. The Thesis in a Nutshell

I see the technical economic concept of “public good” as a mental con-

struct that is epistemologically valid because it captures an idea derived
from two different characteristics that are undeniably present in the objec-
tive world. This concept is an ideal concept in as much as its central idea
is derived from several characteristics that are more or less present in real
situations (Adams & McCormick 1993, 109). This will have, among oth-
ers, the consequence that a concrete economic event can be both a public
and a non-public good (i.e., a private and/or even a merit good) because, in
real life, economic events are more or less public goods rather than strictly
pure public goods.121 The idea captured by the technical concept of public
good is defined as an opportunity for gain for a collectivity because of
non-rivalnessness in consumption, where the opportunity for gain is diffi-
cult to finance because of the non-exclusion possibility. Notice that the
two characteristics of non-rivalness in consumption and non-exclusion
possibility can be present in degrees. Exclusion might be practically im-
possible (breathing the clean air that is provided) or it might be technically
possible at greater or lesser costs (toll booths for highways, scrambling-
unscrambling of TV signals) and, thus, economically more or less desir-
able. Furthermore, the non-rivalness in consumption might extend to the
whole of mankind (ozone depletion), to a nation (national defense), to a
metropolitan area (pollution), or to one single family (the heating of a
home). In other words, the public, for a particular public good, is the
population “N,” where “N” can vary from all human beings to only the
members of a household. The non-rivalness in consumption, too, may be
more or less present. Thus several people can use a bridge without one
person diminishing the enjoyment of the bridge by the other as long as
there are not too many users. When there is congestion then non-rivalness
is not complete. There is partial rivalness. Thus, the more congestion the
less non-rivalness applies. To make matters even more complicated, some

121
Thus, inoculation is a private good. It also has externalities (prevention of an epidemic)
and is thus also a public good. It can also be declared a merit good and be made obligatory.
The theoretical position that the concept of public good is not an absolute and exclusive tag
for an economic event is also taken by others when they point out that the nutritional value
of bread is rival in consumption (only one person can consume the bread) and thus a private
good, whereas the visibility of eating bread is non-rival in consumption (many people can
enjoy simultaneously seeing a poor person eat bread) and is thus a public good. Bread is
thus partially a private and partially a public good (Adams & McCormick 1993, 111). The
concept of public good is, therefore, not like the concept of being pregnant, but rather like
the concept of being just. One is either pregnant or not. However, one is always more or
less just and also more or less greedy or shrewd.
 I. The Thesis in a Nutshell 115

authors have given special names to what I see to be only subcategories of

the concept of public good. Thus, some authors call public goods that
have feasible low-cost exclusion possibilities “toll goods” (theaters, toll
roads, libraries). They call public goods where the sub-parts are rival
goods “common-pool resources” (fish taken from an ocean) (Ostrom &
Ostrom 1991, 168). Others defend the use of a new label for public goods
that have congestion and technical possibilities for exclusion, i.e., “club
goods” (Head 1974, 85–86; Cornes & Sandler 1994, 382–384; Adams &
McCormick 1993, 110–111). I maintain that it is useful to introduce these
subcategories when one discusses different methods of addressing the
problem posed by the presence of public goods. According to my claim, it
is not necessary to introduce these distinctions in order to demonstrate the
validity of the concept of public good and the challenge connected with the
concept. The validity of the concept consists in pointing to an opportunity
for gain by a collectivity whereas the challenge consists in the fact that
there is no general method of financing available to efficiently realize (i.e.,
workable and obeying the Pareto principle) the opportunity for gain.122

122
Some authors succinctly describe the market’s failure to provide public goods when they
argue that the Nash non-cooperative equilibrium is not a Pareto optimal provision (Cornes
& Sandler 1994, 372–3), whereas Samuelson describes the government’s difficulty in pro-
viding public goods when he writes, “it is in the selfish interest of each person to give false
signals” to the government about one’s interest in a public good if that information will also
be used to determine one’s tax share (Samuelson 1954, 388). Different authors have reacted
differently to the lack of a perfect solution for financing the opportunity for collective gain
present in public goods. Samuelson reacts with despair when he writes, “If the experts re-
main nihilistic about algorithms to allocate public goods, and if all but a knife-edge of real-
ity falls in that domain, nihilism about most of economics, rather than merely public fi-
nance, seems to be implied” (Samuelson 1969, 109). Others point out that in most, if not
all, provisions of public good, the government interferes with some wishes of some con-
sumers such as the confiscation of land for the provision of highways (Andel 1968, 213).
Still others, such as Mackscheidt, argue that free rider possibility in the provision of public
goods is sometimes very high where the public good is an externality attached to private
consumption (avoidance of an epidemic if there is enough private inoculation). Mack-
scheidt argues that it might be useful to meritorize private goods with important external-
ities by lowering the threshold of free riding (by subsidizing the good). This, in turn, means
that the provision of the public good (avoidance of an epidemic) is achieved by interfering
with the level of freely chosen consumption of inoculation as is the practice with the provi-
sion of merit goods in general (education, seat belts in cars) (Mackscheidt 1997).
Samuelson reacts with despair, to the absence of a perfect financing method for public
goods; Andel, by noticing the regretful presence of interference; Mackscheidt, by advocat-
ing artful interference. Clearly, the above indicates that the provision of public goods
might imply (or necessarily implies) that there is an overlapping of the concepts of public
and merit goods. The presence of merit good aspects in the provision of public goods
means that considerations other than economic efficiency unavoidably enter the picture.
Such considerations include redistribution, in addition to the impact on freedom and on re-
gional autonomy (Adams & McCormick 1993, 114).
116 6. The Concept of “Public Good”

Given the difficulty of finding a satisfactory solution, even at the ideal

level, it would be surprising if an analysis of concrete instances of public
goods were simple. I will show that at least eighteen ways are used in the
economic literature to point to economic problems related to public goods.
This number is more than the five given by radical opponents of the con-
cept of “public good,” Malkin and Wildavsky, which they accuse the eco-
nomic profession of using.
I will reject the conclusion of Malkin and Wildavsky that the concept of
a public good is purely a culturally relative concept. I will concede, never-
theless, that cultural, or social preferences and institutional arrangements
play important roles in trying to realize some of the gains presented by
goods, having public goods aspects. Economic analysis will unavoidably
become socio-economics. My conclusion, which justifies the validity of
the concept “public good,” implies that there is potentially a legitimate role
for collective action. Such collective action can be undertaken by the gov-
ernment or by non-governmental groups. Samuelson has analyzed the first
approach and Olson the second. Each argues that his approach does not
automatically guarantee an optimal outcome. Both agree, however, that
abstaining from collective action is abandoning an opportunity to realize a
potential gain. My paper will argue that the concept of public good is a
necessary analytic tool for showing the presence of potential gains from
collective action.123

II. Problems with the Concept

A. Objections from the Outside. Malkin and Wildavsky:

The Concept “Public Good” Has No Epistemological
Validity

One of the most radical objections against the concept of “public good”
was undertaken in a joint article by Jesse Malkin and Aaron Wildavsky en-
titled “Why the Traditional Distinction Between Public and Private Goods
Should be Abandoned.” The article, which sympathetically quotes liber-
tarian writers, was published in a political science journal (Malkin & Wil-
davsky 1991, 369). Since libertarians object to most governmental func-

123
I will not analyze in what cases governmental collective action is more desirable than
private group action. A fortiori, it will be clear that the validity of the concept of public
good does not imply that the government must produce the public good.
 II. Problems with the Concept 117

tions, the concept of a public good, for them, must be placed under suspi-
cion, because the concept’s very existence presumes a legitimation of gov-
ernmental activity. The fundamental objection of Malkin and Wildavsky
seems to be that the concept of a public good itself gives rise to the possi-
bility of justifying governmental functions, which they regard as undesir-
able, if not, illegitimate.
It is my view that Malkin and Wildavsky are right in pointing out that
the concept of a public good is sometimes, maybe most of the time, abused
in day-to-day political reality. However, they are mistaken when they try
to locate this political abuse in the idea that the concept of “public good”
itself has no true content and is actually nothing other than a social con-
struct (Malkin & Wildavsky, 372).124 For my part, I will use the argu-
ments of Malkin and Wildavsky to articulate the strongest possible objec-
tion to the concept of “public good” but then, in opposition to their
position, I will argue that the political abuse they observe results from a
misapplication of that concept.
The part of Malkin and Wildavsky’s thesis, relevant for our study here,
is their claim that the concept of a public good is a social construct that can
have many meanings.
The first observation made by Malkin and Wildavsky is that the specific
signifier “public good” is used for expressing the particular idea under dis-
cussion. The choice of this signifier has consequences, they argue, be-
cause our language has automatic associations connected with the signifier
“public” (as demonstrated, for example, by the definition of this word in
Webster’s Third New International Dictionary (Malkin & Wildavsky,
357)). Malkin and Wildavsky then quote two economists (D. Suits and G.
L. Bach) who explicitly espouse what is but a connotation of the signifier
“public”; they take for granted that use of this word must indicate that the
good or the service has to be provided by the collective or the government
if it is to be provided at all. Malkin and Wildavsky then make the further
claim that “many economists...are saying that goods they deem to be pub-
lic ought to be supported by the government” (Ibid.).
I agree that the choice of signifier is important for correctly conveying
the meaning of a word. This observation, however, is more relevant for
words in everyday language than for technical terms in the sciences, be-
cause the meaning of technical terms is specified by their definition. On

124
Philosophically, one describes such an attitude as one which denies the concept episte-
mological validity but locates its power in voluntarism (i.e., the will; in this case, the politi-
cal will to decide one way or the other). Other authors, too, distinguish, as I do, between
political abuse and epistemological validity of the concept and refuse, also, the claim of
Malkin and Wildavsky that political abuse makes the concept epistemologically invalid
(Adams & McCormick 1993, 114).
118 6. The Concept of “Public Good”

the other hand, alternative signifiers for the idea under consideration, such
as collective good (used by Olson) or social wants (used by Musgrave), are
at first sight no improvement. For these reasons, I would prefer to concen-
trate on the task of looking at the scientific definition of the idea (i.e., the
signified) behind the term “public good.”125
Malkin and Wildavsky claim, speaking descriptively, that economists
use different definitions for the concept “public good”(358). A first candi-
date for a definition of public goods is the following: those goods that have
the characteristic of non-rivalness in consumption (358). Such goods can
be enjoyed by many people (e.g., clean air), in contrast to private goods,
which are marked by rivalness in consumption (e.g., bread). A second
definition labels as public goods those goods that have non-exclusion pos-
sibility (Ibid.). This term means that we are confronted with goods that
anyone, whether he pays or not, can enjoy (clean air), in contrast to private
goods, where property right enforcements prevent consumption if one does
not pay (bread). A third strategy for defining public goods uses the two
previous characteristics simultaneously (358–59). Economists who use
this strategy differ as to which of the two characteristics they consider the
more crucial one. Thus, some take non-rivalness in consumption as crucial
and non-exclusion possibility as secondary. If one takes this view, televi-
sion and radio signals would be public goods, even though technology ex-
ists that can exclude non-paying citizens. Other economists opt for non-
excludability as the crucial characteristic. Thus, clean air, which is non-
exclusive but is rival in that a firm cannot pollute while, at the same time,
allowing others to have clean air, would be a public good for these econo-
mists. Still, other economists argue that both characteristics are essential.
These economists give lighthouses and national defense as examples of
public goods.
Malkin and Wildavsky next point to a fourth definition of public goods.
That definition uses three essential characteristics; in addition to non-
rivalness and non-excludability it includes impossibility of rejection (360).
This term points to the fact that whether consumers like it or not, they must
consume the good – for instance, breathe the air, be it polluted or clean.
Malkin and Wildavsky find a fifth definition in Samuelson’s strong po-
lar case of a public good, sometimes called the concept of a pure public
good. Besides non-rivalness and non-excludability, Samuelson seems to
add equal consumption for all consumers (360).
At this point Malkin and Wildavsky shift their argument. They ask
which goods would be classified as public goods under the different defini-

125
Other authors, too, notice the possible misleading nature of the label “public” in the term
“public good.” They, too, separate the superficial problem of misleading associations from
the heart of the matter which is the technical definition (Cornes & Sandler 1994, 370, 375).
 II. Problems with the Concept 119

tions. Clearly, what concrete goods count as public goods will differ from
definition to definition. Malkin and Wildavsky make their strongest theo-
retical claim by building on a mistake made by Samuelson (361).
Samuelson had concluded that his concept of a pure public good made it
imperative to say that in concrete cases, we have many goods which more
or less embody the idea of a pure public good with a “knife-edge pole of
private-good case, and with all the rest in the public-good domain”
(Samuelson 1969, 108).126 Malkin and Wildavsky now point out that
bread certainly is a candidate for the knife-edge pole of the private good
case. But, they argue, if we assume that some people enjoy seeing others
consume private goods, then these private goods automatically become
public goods. Thus, under Samuelson’s definition of public goods, the dis-
tinction between private and public good cannot be maintained. For Mal-
kin and Wildavsky, maintaining the distinction requires drawing a line at
some point, a line arbitrarily specified by economists or by the voting pub-
lic to be at 90 percent, 80 percent or 70 percent “publicness” (Malkin &
Wildavsky 1991, 364).
Malkin and Wildavsky conclude that a good is not definable as a public
good by any objective criteria, or further, by any criteria inherent in the
goods themselves. On the contrary, they argue, a good becomes public be-
cause society decides to treat it that way.

B. Mistakes Made by Insiders: The Concept of Public

Good Is an Ideal Concept as Are the Concepts of Private
and Merit Good

a. Samuelson: Are the Concepts of Private and of Public Goods

Equally Polar or Ideal Concepts?

Samuelson wrote three very influential articles on public goods

(Samuelson 1954; 1955; 1958). In those articles, he introduces the idea of
a pure public good, i.e., a good that, if provided to one person, needs to be
made available in equal amounts to all (Samuelson 1955, 350). By intro-
ducing the idea of a pure concept, he is able to develop two logically nec-
essary conclusions: that there is an opportunity for collective gain and that
individuals are motivated neither to pay for nor to truthfully reveal their in-
terest in the public good to an agency (the government) if that agency in-
tends to use taxation power to force people to pay according to their bene-

126
This is a wrong conclusion, because both the concept of private and of public good are
ideal or polar concepts. For a concrete illustration see the first footnote of this chapter.
120 6. The Concept of “Public Good”

fits (Samuelson 1955, 350; 1954, 388–89). By reflecting on the applicabil-

ity of his theory for real policy matters, Samuelson correctly understood
the nature of his theoretical effort and thus maintained the ideal at the core
of the concept “public good.” However, he did not give the concept “pri-
vate good” the same ideal status. He was therefore forced into maintaining
counter-intuitive conclusions.
Let me quote the passage where Samuelson makes the above reflec-
tions.

In my papers I often spoke of ‘polar’ cases: e.g., the polar case of a ‘pure
private good’....At the other pole was what I called a ‘pure public good’.... I
did not demur when critics claimed that most of reality fell between these
extreme poles or stools, but instead suggested that these realistic cases could
probably be analyzed fruitfully as a ‘blend’ of the two polar cases.
I now wonder whether this was optimal semantics....

Thus, consider what I have given in this paper as the definition of a public
good...: ‘A public good is one that enters two or more persons’ utility’.
What are we left with? Two poles and a continuum in between? No. With
a knife-edge pole of the private-good case, and with all the rest of the world
in the public-good domain by virtue of involving some ‘consumption exter-
nality’...

So I now think the useful terminology in this field should be: pure private
goods in which the market mechanism works optimally, and possibly close
approximations to them, versus the whole field of consumption-externalities
or public goods.

This does, however, lead to an uncomfortable situation. If the experts re-

main nihilistic about algorithms to allocate public goods, and if all but a
knife-edge of reality falls in that domain, nihilism about most of economics,
rather than merely public finance, seems to be implied. (Samuelson 1969,
108-9)

As Samuelson himself connects the free market with the concept of pri-
vate good, it seems legitimate to clarify the ideal concept of private good
by quoting Adam Smith’s understanding of the free market.

All systems either of preference or of restraint, therefore, being thus com-

pletely taken away, the obvious and simple system of natural liberty estab-
lishes itself of its own accord. Every man, as long as he does not violate the
laws of justice, is left perfectly free to pursue his own interest his own way,
and to bring both his industry and capital into competition with those of any
other man, or order of man. The sovereign is completely discharged from a
duty, in the attempting to perform which he must always be exposed to in-
numerable delusions, and for the proper performance of which no human
 II. Problems with the Concept 121

wisdom or knowledge could ever be sufficient; the duty of superintending

the industry of private people, and of directing it towards the employments
most suitable to the interest of the society. (Smith, 687)

If one accepts the notion that the ideal concept of “private good” requires
allowing the market to work completely, then the application of that ideal
concept to the real world requires allowing the market to work as much as
possible. Thus, even though national defense is considered a public good,
there is no a priori demand that the government produce that good. Can-
nons and rifles can very well be produced by the free market and bought
by the government through a bidding system. The government restricts it-
self to providing national defense; it does not have to take control of the
production of arms. Cannons and rifles remain goods that are rival in con-
sumption and subject to exclusion and thus remain private goods. As in-
struments for providing national defense these arms potentially become
public goods.127 Similarly, if permissible pollution units are specified, then
nothing prevents society from letting the free market find the most effec-
tive way of preventing pollution. In my view, it follows that if one accepts
the thought of ideal concepts then it is wrong to argue that one ideal con-
cept can be applied to a greater or lesser extent (Samuelson’s pure public
good) and another not (Samuelson’s private good).
Furthermore, truth in the deductive method of science is established first
of all at the level of the ideal concept. The problem of correctly seeing
how ideal concepts apply to reality is a totally different matter from evalu-
ating an ideal theory or an ideal concept. Samuelson saw correctly the
consequences of calling his definition of public goods an ideal concept.
Unfortunately, he either did not see that the concept of the free market (or
the concept of a private good) is also an ideal concept or he did not cor-
rectly see the consequences of calling it an ideal concept.128

b. Musgrave: The Concept Merit Good Is an Ideal Concept Just as the

Concepts of Private and Public Good

Musgrave introduces in his work the concept of “merit good” as a label for
a number of economic activities of the government that he did not consider
to be proper public goods. His definition of the concept of “merit good” is

127
This conclusion is similar to conclusion from the argument that bread is both a private
good (nutritional value) and a public good (the visibility of eating bread, particularly by the
poor, is pleasing to many). See also footnote 118.
128
An illustration of the ideal and thus unreal dimension of the definition of private goods
is the requirement that they be infinitely divisible (Arrow & Hahn 1971, 61). This require-
ment is necessary for another often-used assumption in micro-economics: smooth indiffer-
ence curves.
122 6. The Concept of “Public Good”

as follows: goods or wants “considered so meritorious that their satisfac-

tion is provided for through the public budget, over and above what is pro-
vided for through the market and paid for by private consumers” (Mus-
grave 1959 b, 13). He also writes that a merit good “by its very nature,
involves interference with consumer preferences” (Musgrave 1959 b, 13).
He gives as examples “free hospitals for the poor or public subsidies to
low cost housing” (Musgrave 1956, 341). Musgrave also allows for de-
merit goods. He writes, “[T]heir satisfaction may be discouraged through
penalty taxation, as in the case of liquor” (Musgrave 1959 b, 13).
Difficulties develop when Musgrave clarifies the relationship between
the three theoretical concepts of private, public, and merit good and con-
crete economic events. In his first writings Musgrave classifies merit
goods as public goods (“social wants” in his terminology), because he
says, “the benefits derived from such services extend beyond the specific
beneficiary” (Musgrave 1957, 111). In later writings he concedes that
merit goods could also be private goods. With reference to merit goods he
writes, “Wants are satisfied that could be serviced through the market,”
and “Separate amounts of individual consumption are possible” (Musgrave
1959 b, 9). Nevertheless, Musgrave continues to write that some merit
goods have many public good aspects. In the German translation of The
Theory of Public Finance and in the English original from the third edition
on, Musgrave hesitantly introduces the idea that there could be polar cases
of private and public goods.129 In order to relate the concepts of private,
public, and merit goods, he proposes two vectors, each with three possibili-
ties. The first vector is the degree of externality or percent of benefit that
is social. This first vector allows for three possibilities: all, part, or none of
the benefits of the good might be social. The second vector addresses the
degree to which consumer sovereignty applies. This vector also allows for
three possibilities: consumer sovereignty applies either fully, partially, or
not at all. The case of a good for which vector one indicates that all bene-
fits are social or are externalities, and for which vector two indicates that
there is full consumer sovereignty, Musgrave calls the case of a 100 per-
cent public good (his category, “social want”). The case of full consumer
sovereignty in vector two and no degree of externality in vector one is then
the case of a 100 percent private want. The case of full consumer sover-
eignty in vector two and a partial degree of externality in vector one Mus-
grave calls a mixed situation with both public (social) and private benefits.
All the other cases are merit wants. Musgrave adds without explanation

129
(Musgrave 1959 b, 89), [Musgrave at Harvard]. See also (Andel 1984, 634). What An-
del refers to as the “third edition” is actually the edition in which the title page refers to
Musgrave as being at Harvard. The earlier edition identifies him as a professor at the Uni-
versity of Michigan.
 II. Problems with the Concept 123

that “the case [merit want situation] at closer inspection frequently proves
to be one of social [i.e. public] want” (Musgrave 1959 b, 89 [Harvard] my
emphasis). It looks to me as if Musgrave understands the concepts of pri-
vate, public, and merit good as tags that can be attached to concrete cases.
The polar nature of the case is introduced only as a surprising result. It is
not a permanent feature of Musgrave’s thinking on these three concepts.
In his publication Fiscal Systems, he often, if not exclusively, considers
merit goods to be private goods. He writes, “they are quite capable of be-
ing subjected to the exclusion principle” (Musgrave 1969 a, 12).
Clearly, Musgrave shifts his opinion in considering whether merit goods
are private or public goods. It is not that Musgrave does not know the
definitions of the concepts of private, public, and merit good, but rather I
propose that the weakness of Musgrave’s view lies in his conception of the
nature of the concepts of private, public and merit good. Musgrave seems
to work with the idea that these three concepts are taxonomic and are thus
like tags which are able to identify concrete economic goods. The con-
cepts are supposed to separate economic activities which have mutually
exclusive characteristics. The difficulty of such a conception of the three
economic concepts starts when Musgrave notices that economic activities
that must be tagged as public goods (because they are provided for by the
government) have a secondary characteristic that does not agree with the
definition of public goods (the violation of consumer wishes). A new dif-
ficulty arises for Musgrave when he sees that goods provided by the gov-
ernment on meritorious grounds can also be provided efficiently through
the market (medical services and housing). Musgrave ends up accepting
the position that merit goods are not a subcategory of either the tag public
good or the tag private good, because a merit good can be both a private
and a public good.
Musgrave has no difficulty in maintaining that the three concepts have
different definitions, yet he seems puzzled that several concepts can apply
to one and the same economic event. I propose that the three concepts of
private, public, and merit good are unambiguously different, but that they
can apply to the same economic activities. For this to hold, the concepts
must be considered tags, not for real events, but for mental constructs us-
ing characteristics of real events. The three concepts are not like tags that
answer the question of whether or not an object is made from wood, iron
or aluminum. These usually are all or nothing questions and the answers
are therefore also mutually exclusive (A table is normally either made
from wood, or from iron, or from aluminum.) The three economic con-
cepts under discussion are more accurately tags for answering questions
like: is this person just, or friendly, or generous? These concepts all apply
124 6. The Concept of “Public Good”

in degrees130 and are also not mutually exclusive. If the three concepts of
private, public, and merit good are similar to the concepts of just, friendly,
or generous, then a concrete economic activity can be said to possess all
three characteristics and to possess them in varying degrees.
Let us take the example of milk. Milk is a prime example of a private
good since it is excludable and is marked by rivalness in consumption.
However, one could also rightly argue that, in some countries, milk is a
merit good because the state subsidizes it in order to increase its consump-
tion by the poor. Finally, one could argue further that milk is a public
good because many people enjoy the idea that children in their country
have milk available to them. In this sense, consumption of milk represents
a psychic externality and to this extent is a public good. These three char-
acteristics can be truthfully ascribed simultaneously to milk only if the
three concepts of private, public, and merit good point to aspects of goods
rather than being tags for concrete goods.131
The importance of conceptually seeing that one service can be simulta-
neously a private, a public, and a merit good is demonstrated in Kenneth
Godwin’s article “Charges for Merit Goods: Third World Family Plan-
ning” (Godwin 1991) where the author analyzes the effectiveness of family
planning in developing countries by means of the distribution of contracep-
tives. As family planning is considered desirable by the elites, Godwin
claims that they can be considered a merit good (416). However, contra-
ceptives are also “a private good, rival and exclusive” (416). Finally,
Godwin argues that “many women would use effective, reliable contracep-
tion if it were available and affordable” (416). But, as contraceptive ser-
vices are neither affordable for many women nor readily available, the
market by itself is of little help in reaching the goals of the merit good pol-
icy. Looking at the delivery of contraceptives in a third way, some coun-
tries consider it a public good, where the elite realizes that different
women are willing to pay different prices and where the government can
provide help both by making the provision easier and by charging a differ-
ent price to different people according to the public good’s principles.
Godwin now makes the following observations: on the basis of it being
a merit good, some want the government to “offer these services at little or
no cost” (417). This is the case with Ecuador. However, in an alternative
example “the Columbian public health-care system charges for its ser-
vices” (423). It applies a user fee, the amount of which differs according

130
This has also been observed about the concepts of private and public good by others
(Adams & McCormick 1993, 109).
131
I differ from others who call a public good a category and call excludability and rival-
ness in consumption characteristics (Ostrom & Ostrom 1991, 165 ff.). I see no difficulty in
calling the concept “public good” a characteristic or an aspect of concrete economic events.
 II. Problems with the Concept 125

to income, which is one method used to deliver and pay for public goods.
The first approach leads to a centralized delivery of the contraceptive ser-
vices. The second approach leads to a decentralized approach. Interest-
ingly, the difference in efficiency between the two countries is dramatic.
Columbia has a greater decline in fertility rate and pays four dollars per
acceptor, whereas Ecuador spends fifteen dollars (425). I now want to pre-
sent my own conclusion with reference to this evidence. According to
Godwin, Ecuador considers contraceptive services to be solely merit goods
and delivers them free of charge. Columbia considers the contraceptive
services to be at the same time private, public, and merit goods. Godwin's
article demonstrates that Columbia, and other countries following similar
policies, is more effective than countries that act as if contraceptive ser-
vices are only merit goods and not also private or public goods. The merit
good aspect is present in the willingness by the government to subsidize
the level of provision of contraceptive services beyond the level justified
by the public good argument (i.e., the level determined by the willingness
to pay by all potential consumers). One advantage of introducing the pub-
lic good argument is that it allows for a policy that can rely on user fees
when there are not enough health dollars in the country's budget to fully fi-
nance the delivery of contraceptive services. At the same time, labeling
contraceptives a public good does not prevent a governing elite from also
declaring it a merit good that justifies looking for means to increase its
consumption beyond the level guaranteed by the willingness to pay. In or-
der to avoid the inefficiency of the Ecuador model and to obtain the bene-
fits of the efficiency of the Columbia model one needs to conceptualize
contraceptives as merit, public, and private goods at the same time.
The three concepts are, in a second way, similar to tags like just,
friendly, or generous in that they point to less tangible aspects of economic
activities or economic goods. For less tangible characteristics we can ex-
pect many different descriptions. And indeed, economists have used many
words to describe the characteristics of economic events possessing public
good aspects. They have also used many words to describe the special re-
lations human beings have with such economic events. I will assemble
both the words pointing to characteristics of economic events and the
words describing human relations with such economic events. In the fol-
lowing sections I will argue that all the characteristics of economic events
with public good aspects can be reduced to two characteristics that to-
gether form the ideal concept “public good.”
126 6. The Concept of “Public Good”

III. In Search of a Definition

A. An Enumeration of the Characteristics Used to Classify

an Economic Activity or an Economic Good as a Public
Good

Malkin and Wildavsky claim that, according to their reading, economists

do not point to multiple characteristics of economic events that are public
goods, but rather, present five different definitions of the concept. If this
were the case, then Malkin and Wildavsky would be right in objecting to
the economic profession.
I am convinced that a better approach requires looking at the many
characteristics that economists have observed in goods with public good
aspects and then seeing if a single definition can be developed.
In his Public Goods and Public Welfare Head enumerates the following
characteristics as features used to define public goods: (1) decreasing costs
in production, (Head 1974, 176) (2) externalities, (85) (3) Samuelsonian
joint supply, (77 ff.) (4) non-exclusion, (80) (5) non-rejectability, (82) (6)
benefit spillovers, (271) (7) unenforceability of compensation, (185) (8)
indivisibility, (161) (9) non-appropriability, (28) (10) non-rivalness in con-
sumption, (78) (11) economies of scale, (179) (12) multiple user good,
(79) and (13) lumpiness, (168). Head wrongly rejects (14) Marshallian
joint supply (78–9). Other authors add: (15) free rider possibility, (Bu-
chanan 1975 b, 207) (16) non-subtractability, (Ostrom & Ostrom 1991,
165–7), (17) the fact of not being packageable, (Ostrom, et al. 1991, 140)
and finally (18) the strategy of holding out (Ostrom & Ostrom 1991, 170).
There are, therefore, at least eighteen terms referring to characteristics of
economic events with public good aspects. However, some of the eighteen
characteristics are obviously related to each other in as much as they point
to the same aspect, albeit from somewhat different angles. I will therefore
group the above-enumerated characteristics with the purpose of arriving at
a single definition of the concept “public good,” a result that, if achieved,
would undermine one of Malkin and Wildavsky’s attacks on the concept.
 III. In Search of a Definition 127

Group I. Not Internalizing the Price of an Aspect into the Price of the
Total Good

(2) Externalities are costs and/or benefits from consumption or production

that are not reflected in market prices (Penguin 1972, 158–59).132
(6) Benefit spillovers, according to Head, refer to positive externalities
resulting from the provision of services by one jurisdiction that are enjoyed
by residents of another jurisdiction (Head 1974, 270–78). Clearly, this
concept is a subcategory of the concept “externalities.” It restricts the
beneficiaries to lower level governmental jurisdictions.
(7) Unenforceability of compensation is understood by Head as the cen-
tral characteristic of externalities (Head 1974, 185–86).
(5) Impossibility of rejection is defined by Head as an extreme form of
external diseconomy (Head 1974, 83).
(14) The term Marshallian joint supply refers to a situation where two
or more products are necessarily produced by one process, such as meat
and wool from sheep (Penguin 1972, 239; Head 1974, 78–79A). Head
provides an argument for treating this case as consisting of private goods
that can be handled in a Pareto-optimal way by the market and therefore
does not belong to the problematic of public goods (Ibid.). If we take an-
other example, that of the bee-keeper, then we have the case of one prod-
uct or service that is paid for (honey) and another service (pollination of
the apple trees leading to increased apple production) that is jointly sup-
plied but where compensation is unenforceable. Marshallian joint supply
can therefore present a public goods problem if one jointly supplied ser-
vice is such that compensation is unenforceable.

132
Some authors warn that externalities cannot be identified with public goods even though
there are similarities. Thus, Bohm points out that public policy addressing externalities of-
ten aims at curtailing “mainly private activities with negative effects on other[s]...whereas
public policy concerning public foods is about increasing – or even creating – something
that is suboptimally provided by the private sector” (Bohm 1997, XVII). This difference is
conceptually irrelevant, if the purpose is to see possibilities for collective gain. The same
author points out that Marshall connected the concept of external economies with some
forms of economies of scale (45). The connection between these concepts is taken up when
I discuss the concept of “economies of scale”.
128 6. The Concept of “Public Good”

Group II. Violation of Infinite Divisibility Theoretically Required by

the Concept “Private Good”

(8) Indivisibility: This concept means that certain goods are not available
in all desirable quantities, but only in specific sizes.133
(15) Lumpiness is a synonym for indivisibility (Head 1974, 168).

Group III. One Good, Many Users; Decreasing Cost Possibilities

(3) Samuelsonian Joint supply: In order to avoid confusion, one should

distinguish between Samuelsonian and Marshallian joint supply. The term
‘Marshallian joint supply’ refers to a situation where two or more products
are necessarily produced by one process, such as meat and wool from
sheep (Penguin 1972, 239; Head 1974, 78–79). This concept belongs in
the discussion of public goods only if there is unenforceability of compen-
sation of one of the jointly produced services. The term ‘Samuelsonian
joint supply’ refers to a situation where, because one product can be en-
joyed by many, it becomes efficient for consumers to join together in the
production process. Samuelsonian joint supply is, thus, a production reac-
tion to a characteristic of the consumption condition (Head 1974, 77).
(12) Multiple user good: Sharp introduced this term to avoid the con-
fusion that is possible with the term “Samuelsonian joint supply.”134
(10) The term non-rivalness in consumption conveys the same charac-
teristic as Samuelson’s concept “joint supply.” The only difference is that
this term describes the characteristic from the point of view of consumption
and not of the solution in production. This concept also means to convey
the same characteristic as the one referred to by Sharp’s term “multiple
user good.” The difference is that Sharp describes the characteristic from
the point of view of the economic good under consideration and not from
the point of view of consumption of that good.
(1) Decreasing production costs simply refers to the fact that there are
economies of scale (Penguin 1972, 135–37). Head, however, looks at the
possible effects on consumers of decreasing production costs. He points
out that a major consequence of economies of scale for consumers is that
each additional consumer buys not only a rival good (a car or a PC), but

133
(Penguin 1972, 135). Head accuses Buchanan of using “indivisibility” confusingly as a
portmanteau term for two characteristics: joint supply and impossibility of exclusion (Head
1974, 78-79).
134
(Head 1974, 168; Bird & 1972, 4). Head also draws attention to some unfortunate terms
used upon occasion for this characteristic, such as: jointness of demand, joint consumption,
consumption externality, non-rivalness in consumption (Head 1974, 78 n. 15).
 III. In Search of a Definition 129

also provides, at the same time, a positive externality for all other consum-
ers of this good: i.e., a lower unit price for the car or the PC (Head 1974,
28, 176–79). Economists can thus look upon the case of decreasing pro-
duction costs or economies of scale as a case in which consumers are con-
fronted with a rival good that has also an externality that is non-rival in
consumption (i.e., the price at which the rival good can be offered given
the quantity of the rival good demanded, which is strongly correlated with
the quantity of consumers demanding the rival good). According to Head
the cheaper price of a PC resulting from an increase in demand for PC’s is
similar to the cheaper cost imposed on consumers resulting from an in-
crease in consumers for goods generally recognized as public goods, such
as bridges and lights in back alleys. For the study of the concept of public
good, the relevant aspect of decreasing cost in production is therefore the
positive externality of lowering the price for all consumers by the mere
fact of buying an additional unit of the rival good or, in other words, the
non-rival consumption gift of a lower price for a rival good resulting from
any increase in demand of the rival good.
(11) Economies of scale are the cause of decreasing production costs per
unit with increase in demand. Economies of scale are relevant for these re-
sults in that they produce something for the consumer. I analyze the dif-
ferent aspects of this phenomenon under the term ‘decreasing costs in pro-
duction’ in the previous paragraph.
(16) Non-subtractability which is defined as the the fact that “consump-
tion by one person precludes its use or consumption by another person”
(Ostrom & Ostrom 1991, 165–7). Such a good is thus completely rival in
consumption. A completely non-subtractable good is a good where joint
consumption takes place without the crowding out effect. It is thus com-
pletely non-rival in consumption. If the good is partially subtractable we
face partial non-rivalness in consumption where there is partial loss in en-
joyment from additional consumers.

Group IV. Payment Problems: The Inability to Prevent Enjoyment

without Pay

(7) Non-exclusion is a term used to describe the enviable position of a

consumer who can enjoy a product without having to pay for it. This
situation arises when a producer or a consumer has no economically sensi-
ble method of excluding another consumer from enjoying the good or ser-
vice without the latter paying his/her share in the good or service that s/he
co-consumes.
(17) The fact of not being packageable is defined as the impossibility
“of being differentiated as a commodity or a service” so that “it can be
130 6. The Concept of “Public Good”

readily purchased and sold in the private market” and where “those who do
not pay for a private good can then be excluded from enjoying its bene-
fits.” Political scientists using the term “packageable” identify the idea
with the exclusion principle of economists (Ostrom, et al. 1991, 140–1). In
my view, the word “packageable” points to a possible strategy to make the
exclusion principle work.
(15) A free rider is a person who makes use of the advantages of the
non-exclusion situation (Buchanan 1975 b, 37, 148). Malkin and Wil-
davsky claim that individuals “indicate a more honest revelation of prefer-
ences than that predicted by free rider theory” (Malkin & 1991, 336).
However, they overstate their claim when they conclude that it is a ficti-
tious problem. Other authors counter this claim by pointing to experiments
that “offer persuasive evidence that free riding is a real phenomenon” (Ad-
ams & McCormick 1993, 113). These other authors also point out that
“less-than-total free-riding do[es] not demonstrate that the free-rider prob-
lem is not prohibitive” (Ibid.)).
(18) Holding out is one strategy that a free rider may use (Ostrom & Os-
trom 1991, 170). Holding out can be justified by claiming that one has no
interest in the public good, less interest than is actually the case, or by dis-
puting the fairness of one’s assigned payment. The crucial factor is that
the arguments are used in order to refuse participation in financing the
public good. When holding out is possible, one is in the presence of a pub-
lic good.
(7) Non-appropriability is a term used to describe the problem from the
point of view of an economic good. Head defines it as “that property of a
good which makes it impossible for private economic units, through ordi-
nary private pricing, to appropriate the full social benefits (or be charged
the full social costs) arising from their production or consumption of that
good.”135

B. Reduction of the Many Characteristics to a Few

Crucial Ones

Let us now reflect more formally on each of the four groups of characteris-
tics of public goods.
Group I includes externalities, benefit spillovers, unenforceability of
compensation, impossibility of rejection, and Marshallian joint supply.
The relationships among these characteristics can be presented as follows.
Externalities can be either positive or negative. In the former case, they
135
(Head 1974, 28) He also explicitly mentions that it is meant to convey the same prob-
lem as Musgrave’s “impossibility of exclusion.” (Head 1974, 28 n. 55, 180)
 III. In Search of a Definition 131

are often referred to as “external economies” while in the latter they are of-
ten called “external diseconomies.” An extreme form of external disecon-
omy is the impossibility of rejection. A particular form of external econ-
omy is the benefit spillover of local government actions onto non-residents
or people outside of the political locality. Another particular form of ex-
ternal economy is a Marshallian joint supply in which the producer of one
service has no way of charging a fee for a second jointly supplied service.
Externalities are a problem because the price of an aspect of a good cannot
be included in the price of the good itself. Thus, there is a price internali-
zation problem. Until the price internalization problem is solved, there is
the problem of unenforceability of compensation. These complex relations
are represented in Table I.

Table 1: Group I: Externalities

Externalities

Positive externalities Negative externalities

In same service In different In political Normal case: Extreme

(light/safety) service (apples context: Negative ex- problem:
(In alley) and honey from Benefit spill- ternalities Impossibility
bees): overs of rejection
Marshallian joint
supply
Problem: internalization of price and aspect of a good into price of
the good itself because of unenforceability of compensation

Group II includes indivisibility and lumpiness. These two terms are es-
sentially synonymous
Group III includes Samuelsonian joint supply, multiple user good, non-
rivalness in consumption, non-subtractability, decreasing production costs,
and economies of scale. The first four concepts are essentially synony-
mous, describing a single characteristic seen from four points of view. The
term “multiple user good” describes the characteristic under consideration
from the point of view of a good which has special features in its consump-
tion possibilities: it can be used by many consumers and, thus, possesses
132 6. The Concept of “Public Good”

the characteristic of non-rivalness in consumption. This is the case, be-

cause enjoyment of the good by one consumer does not subtract from the
usefulness of that good for another consumer. The good is therefore said
to be non-subtractable. In consuming such a good, consumers are not ri-
vals. Samuelsonian joint supply is an efficient production strategy for
goods with the special consumption feature of non-rivalness in consump-
tion.136 Head proposes the fifth term “decreasing production costs” as the
most general term. Decreasing costs can be obtained from the production
side and from the consumption side. The former is, in economic literature,
called “economies of scale.” The latter is labeled with one of the four es-
sentially synonymous terms mentioned above (i.e., Samuelsonian joint
supply, multiple user good, non-rivalness in consumption or non-
subtractability). I have interpreted decreasing costs in production and
economies of scale as creating a possibility of a non-rival gift of cheaper
pro unit costs for a good with each increase in demand of the good. The
relationships among the items in Group III are represented in Table II.

Table II: Group III: Opportunities given decreasing costs

Opportunities given decreasing costs

(On production side) (On consumption side)

Economies of scale or
decreasing production
costs lead to non-rival
gift of cheaper pro unit
costs in consumption
by increased demand.
Can be labeled by four synonyms by
emphasizing:
1. Reason for problem seen in consump-
tion: non-rivalness in consumption,
2. Reason for problem seen in consumed
good: its consumption by one person
does not subtract (non-subtractability)
from usefulness for another person.
3. Characteristic of the good: multiple
user good.
4. Name of author who proposed a produc-
tion strategy to deal with the problem;
Samuelsonian joint supply.

136
It is very important to see the difference in point of view taken when using these syno-
nyms. Failing to do so easily leads to confusion. See Olson’s attempt to relate his concept
of exclusive collective good to jointness of supply. (Olson 1968, 38 n. 58)
 III. In Search of a Definition 133

Group IV includes non-exclusion, free rider possibility, non-

appropriability, non-packeagability, and the possibility of holding out.
These terms too emphasize a same characteristic from different angles.
Non-exclusion possibility focuses on the fact that non-paying consumers
cannot be excluded from the enjoyment of a good or service. Non-
packageability focuses on a characteristic of goods that make exclusion
difficult or impossible (i.e., the good is not neatly packageable so that it
can be sold in separable units). Lack of packageability of a good or im-
possibility of exclusion means that consumers can enjoy a good without
paying, in other words, they can be free riders. “Free rider” is, thus, a term
for non-paying consumers of goods that are not packageable or that are
non-exclusive. A strategy to become a free rider of such goods utilizes
holding out voluntary payment by exploiting the fact that one cannot be
excluded from enjoying the good anyway.
These four groups can now be further combined. Combination A relates
Groups II and III. Combination B relates Groups I and IV.
These four groups can now be further combined. Combination A relates
Groups II and III. Combination B relates Groups I and IV.
Combination A: Group II and Group III are related as a cause is related
to an effect. Indivisibility or lumpiness is one of the reasons for economies
of scale or for the availability of decreasing costs, i.e., of an opportunity
for gain.
Combination B: Group I and Group IV are related to each other because
the problem with externalities is at bottom the unenforceability of compen-
sation. This concept is closely related to the concept of non-exclusion or
non-appropriability.
Head, however, points to two differences between these two seemingly
similar concepts. First, unenforceability of compensation in the case of ex-
ternalities takes place concerning services which are often of a different
nature than the ones that are paid for, as when production of apples co-
produces flowers, providing free nectar to the honey industry (Head 1974,
185-86). Non-appropriability because of non-exclusion possibilities in the
enjoyment of pure public goods, on the other hand, refers by definition, to
the same service. Second, externalities may extend to only one or to a few
persons; pure public goods extend by definition, to all members of the
relevant group (Head 1974, 186).
In my view, the second difference discussed by Head concerns a feature
of public goods that does not touch its essence. Indeed, nothing prevents
us from extending the use of the concept of the relevant group, used by
Head exclusively for the concept of a pure public good, to the phenomenon
of externalities. The number of persons who enjoy the externalities could
134 6. The Concept of “Public Good”

then be called the relevant group or the relevant public for the external-
ities.137
In my view, the first distinction is also unessential from the point of
view of economic optimalization. I see a pure public good as a good that
is nothing but externality. Thus, the theorem regarding the difficulties that
occur in the search for a social optimum with pure public goods has dra-
matic generality precisely because these same difficulties arise with all
goods having externalities.
As a consequence, we are left with the idea that the eighteen character-
istics can be reduced to two combinations: Combination A and Combina-
tion B. Combination A stresses the opportunity for gain resulting from the
existence of goods that can be used by many. This characteristic can then
be elevated to an ideal level. Instead of stressing that a good can be used
by many, we now can say that for that good there is non-rivalness in con-
sumption. Combination B stresses the problem related to the realization of
the opportunity for gain: unenforceability of compensation because of non-
exclusion possibility. This non-exclusion possibility can be treated as a
technical problem; namely, the problem of finding barriers for non-paid
consumption (such barriers include toll-booths, TV signals that are usable
only with a descrambler, and taxation schemes). The non-exclusion possi-
bility can, however, also be elevated into an absolute problem. This is the
case when barriers can not be found or when implementing barriers is too
expensive. Thinking of non-exclusion possibility as being without a per-
fect solution is equivalent to elevating it into an absolute and, thus, an ideal
level.
Thus, the eighteen characteristics by which public goods aspects or
problems are described can be reduced to a related pair:
1) Decreasing costs from multiple users, thereby offering an opportunity
for gain.
2) Unenforceability of compensation because of non-exclusion possibil-
ity. This makes financing the opportunity for gain difficult, if not impossi-
ble.138

137
This move is, in fact, made by Samuelson when he changes his verbal definition of pub-
lic goods without changing his mathematical model. Thus, in the Biarritz conference, he
writes, “A public good is one that enters two or more persons’ utility” (Samuelson 1969,
108). Other authors, too, make this move when they recommend that the public affected by
a public good should ideally be equal to the political community that makes the decision
(Ostrom, et al. 1991, 147).
138
This conclusion is different from those of some other authors who are satisfied to notice
that different approaches stress one or the other feature as important for the breakdown of
the basic theorems of welfare economics (Cornes & Sandler 1994, 375). These authors
look for empirical cases where the theory of public goods makes a contribution. My ap-
 IV. Implementation Problems 135

IV. Implementation Problems

The concept “public good” is a multidimensional concept because it cap-

tures two characteristics. Authors looking for solutions for the potential,
but unrealized, gain present in public goods can address either one of the
two characteristics. Samuelson addressed the non-rivalness in consump-
tion. Olson addressed the non-exclusion possibility. Both concluded that
a general optimal economic solution does not exist. In my view, this con-
clusion also gives non-economic factors a role in the choice of solution and
makes the solution of the public goods problem a socio-economic problem.
I will therefore conclude that valid economic reasoning about the concept
of public good both establishes that there is a pure economic challenge and
that all kinds of payoffs (social, political, legal) are at work in finding a so-
lution. That solutions will have to be artful does not mean that the prob-
lems for which they are solutions are not valid problems. The latitude that
might exist with solutions does not mean that the problem is a fiction as
Malkin and Wildavsky’s article suggests.

A. Samuelson: The Non-Rivalness in Consumption

As the primary characteristic for his analysis, Samuelson selects decreas-

ing cost resulting from the fact that there are multiple users.139 From this
he is able to derive, with the assumption of self-interested behavior,140 an

proach intends to theoretically capture the necessary features for the breakdown of private
goods analysis or market performance.
139
“Collective consumption of goods…which all enjoy in common in the sense that each
individual’s contribution of such a good leads to no subtraction from any other individual’s
consumption of that good” (Samuelson 1954, 387). Even more explicit is the following:
“The possibility or impossibility to apply an exclusion principle is less crucial than con-
sumption externality, since often exclusion would be wrong where possible” (Samuelson
1969, 105). Other authors have observed the above-mentioned choice made by Samuelson
(Cornes & Sandler 1994, 371). They do not point out, as I do, that Olson chooses non-
exclusion as the crucial characteristic for his reflections.
140
Stretton and Orchard strongly attack this assumption. They point to a multiplicity of
motives at work in the provision of public goods and then claim that the economist’s model
is unrealistic and, thus, useless (Stretton & Orchard 1994, 78–9, 277). In my view, eco-
nomic analysis of public goods can be used to demonstrate the presence of a challenge: an
opportunity for collective gain and the difficulty of financing that opportunity. In my paper
I do not choose between advocating for the creation of private incentives (merit increases in
salaries; increase in insurance premium after an accident) or advocating societal support for
responsible behavior (medals for heroic behavior in war or outstanding achievements; pub-
lic praise for altruistic efforts).
136 6. The Concept of “Public Good”

optimal level of provision.141 In the case of a positive economic good, the

optimal level of provision is bigger than the sum of quantities that the con-
sumers would individually buy. Left to the free market, public goods will,
in that model, be under-provided.142 There thus exists an opportunity for
economic gain. According to Head – and I agree with him – Samuelson’s
statement provides a benchmark for the assessment of market performance.
Samuelson includes the second characteristic (unenforceability of com-
pensation) in his analysis when he looks for a method to realize the oppor-
tunity for gain. Samuelson’s proposal consists of two steps (Samuelson
1954, 387–8 “Optimal Conditions”). First, he asks that the government in-
quire about how much each citizen is willing to pay for a particular public
good (e.g., a bridge). If an entrepreneur is willing to provide the public
good at a price that is less than what the citizens are willing to pay, then
there is an opportunity for gain for all in the provision of that good.
Second, the government must use its tax power to force people to pay
what they declared they were willing to pay. Samuelson uses the govern-
ment to overcome the unenforceability of compensation.143 He then points
out that citizens will realize that their declared willingness to pay for a
public good will be used twice by the government: once to decide whether
or not to provide the good and once to decide how much to tax citizens for
a particular good. Thus, claims Samuelson, citizens will have a selfish in-
centive not to reveal their true preferences. Consequently, he concludes,
an ideal solution exists, but it cannot be realized by the government.144
Samuelson thus argues that the government is technically capable of
dealing with the unenforceability of compensation for public goods by us-
ing its power of taxation. However, says Samuelson, one can not hope,

141
The mathematical proof is given in Samuelson 1969. The geometric proof is given in
Samuelson 1955.
142
This is the conclusion popularized in Galbraith, 1958. Conversely, others point out that
there are theoretical cases (empirically extremely rare) where the Nash non-cooperative
equilibrium is identical with the Pareto-optimal solution (Cornes & Sandler 1994, 374).
143
Up to this point Samuelson’s ideas were already captured by Adam Smith when he
writes that the government has three duties to perform in the economy, the third being “the
duty of erecting and maintaining certain public works and certain public institutions, which
it can never be for the interest of any individual or small number of individuals, to erect and
maintain; because the profit could never repay the expence to any individual or small num-
ber of individuals, though it may frequently do much more than repay it to a great society”
(651).
144
Thus Samuelson writes that there is an “Impossibility of decentralized spontaneous solu-
tion” (Samuelson 1954, 388–9) and “Although the optimum is definable, rational people
will not, if left to themselves, be led by an invisible hand to the bliss point. On the con-
trary, it will pay for each rational man to dissemble, trying to mask his preference for the
public goods and to engage in other game strategy maneuvers which, when all do them, will
necessarily involve deadweight loss to society” (Samuelson 1958, 334).
 IV. Implementation Problems 137

even at the level of the ideal concept, that the government will succeed in
using its tax power in such a way that the opportunity for gain is fully and
optimally realized.145
Even at the ideal level, the concept of public good represents a difficult-
to-realize opportunity for gain. It is difficult to get the information about
the desirability of the public good. Or, in economic jargon, there is a prob-
lem of true preference revelation.
Nevertheless, even without perfect knowledge, the government must
decide whether or not to provide the public good. It also must decide how
much of the public good it should provide. Finally, the government must
decide, all without guaranteed information, on a tax schema. Under such
circumstances, it is not possible for the government to reach an optimal so-
lution and a Pareto distribution of taxes for the public good.
Some authors have introduced sophisticated demand-revealing proc-
esses consisting of a two-step taxation system. First, there is a tax levied
on each citizen which, added together, covers the total cost of the public
good. In order to guarantee Pareto optimality, the tax on each individual is
not to exceed the declared willingness to pay of each citizen. Second, an
additional tax, the Clarke tax, is imposed in order to guarantee that the citi-
zens are economically motivated to reveal their true preferences.146 If the
Clarke tax succeeds in eliciting true preferences, then the first tax satisfies
the Samuelsonian conditions for Pareto optimal provision of the public
good.
Several problems emerge with the use of Clarke taxes. First, Clarke
taxes are taxes beyond the cost of the public good. They can be substantial
for small groups. Happily, they decrease as a proportion of the total tax
when the group of citizens increases. Still, charging more than the cost is
not an optimal solution (Mueller 1979, 74 ff.).
The second problem with the Clarke taxes is that the outcome can be
manipulated if individuals come together and coordinate their responses
(Stevens 1993, 162).

145
“[My theory] is in fact an attempt to demonstrate how right Wicksell was to worry about
the inherent political difficulty of ever getting men to reveal their tastes so as to attain the
definable optimum.” (Samuelson 1955, 355)
146
A Clarke tax is a tax used to encourage true preference revelation for public good pro-
jects. A Clarke tax is imposed on person A if A’s preferred option wins because of A’s
declared monetary interest in one particular approach to a public good. The amount of
Clarke tax is equal to the amount that A’s preferred option would loose without A’s de-
clared monetary interest. Take the case of Dutch elm disease, which can be approached by
experts’ removal of sick elms or by doing nothing. If A declare that it is worth $40 to him
to have nothing done and that option wins by $30 then the Clarke tax for A is $10 ($40-
$30=$10) (Stevens 1993, 160–161).
138 6. The Concept of “Public Good”

Thirdly, and theoretically extremely interesting, Clarke taxes aim at a

voting mechanism that allows the expression of the intensity of one’s vote.
Take the following case. Citizen A prefers outcome Y over X with $30.00
and citizens B and C each prefer outcome X over Y with $10.00. Democ-
ratically, the vote is 2 to 1 in favor of outcome X. Using a democratic pro-
cedure X should be realized. If efficiency is to prevail, then the money
value of outcome Y is $30.00 and of outcome X $20.00. Thus Y prevails.
Clarke taxes that aim at efficiency can easily require that majority vote be
overruled (Stevens 1993, 160–2). Efficiency, democratic procedure and
fair taxation cannot always be jointly achieved.
Where does the Samuelson’s impossibility theorem and the critical
evaluation of the Clarke tax proposal leave us with regard to governmental
provision of public goods? Three remarks need to be made, to address this
question.
First, even if Clarke taxes encourage true preference revelation, citizens
are charged more than the cost of the public good. The governmental pro-
vision of public goods using Clarke taxes is therefore not economically op-
timal. If Clarke taxes are not used to encourage true preference revelation,
then the government decides in partial ignorance of true preferences and its
decision can easily be inefficient. Thus, it is important to analyze the lack
of efficiency involved in governmental delivery of public goods.
Second, the governmental provision of public goods almost always in-
volves the use of coercion in one of its many forms (compulsory payment
by means of assessed taxes; confiscation of property (e.g., land); majority
rule imposing the interests of the majorty on the minority) (Priddat 1992,
246). The pure economic justification of governmental provision of public
goods is that nobody needs to be made worse off and some can be made
better off.147 Coercion allows for some people to be made worse off. It
also permits violation of freedom and of property rights. The use of coer-
cion in the governmental provision of public goods points to a dimension
that is not pure economics. It requires reflecting on whether the use of co-
ercion that violates the freedom and the property rights of some is a price
one wants to pay for the provision of the public good. Such a reflection
requires comparing the merits of the provision of a public good with the
demerits of the use of coercion.148 If the provision of the public good has

147
Technically this can be achieved when there is a benefit-based tax system. For a discus-
sion of the difficulties to implement such a tax principle see Kiesling (1992, 201 ff.). In the
case in which all taxes would be Pareto-efficient payments for public goods one could ar-
gue that we have a voluntary exchange theory of taxation (Head 1974, 152 ff.).
148
On the other hand, if the public good is very meritorious, as with inoculations to prevent
an epidemic, then, argues Mackscheidt, the government should use techniques appropriate
for merit good provision in order to diminish the attractiveness of free-riding. Thus, the
government should provide inoculation so much below cost that enough previous free-
 IV. Implementation Problems 139

little or no merit, then the use of coercion might not be justifiable.

Samuelson’s approach to the provision of public goods requires us to not
only consider the public good’s aspect of public goods but the merit good
aspect as well, given that coercion is involved.149
Third, it is possible that unavoidable governmental ignorance in provid-
ing public goods, combined with the use of coercion, can lead to very un-
desirable results. This is because special interest groups could be able to
make use of the government’s power of coercion for their own benefit
without the government having the necessary knowledge to understand
what is happening. A case in point is the 1911 compulsory national insur-
ance in Great Britain. The public good of affordable health was coercively
provided by the government but with some important negative conse-
quences. Based on the research of David Green (1993), Schmidtz and
Goodin write:

medical associations...joined forces with for-profit insurance companies

(which also viewed friendly societies as an obstacle to higher profits)...they
played a major role in amending early drafts of the 1911 National Insurance
Act so that the final legislation would do maximum harm to friendly socie-
ties.

Two features of the Act are crucial. First, the Act established price floors
that made it illegal for friendly societies to offer health care at lower prices.
Second, the Act compelled male workers earning less than a certain income
to purchase government medical insurance, thereby making it more difficult
if not pointless to pay friendly societies dues. (Schmidtz and Goodin 1998,
68)

The case of the 1911 compulsory national health insurance in Great

Britain can be seen as an example of interest groups (ab)using the govern-
ment’s power of coercion in the provision of a public good in order to im-

riders consider it in their own self-interest to buy inoculation at the reduced cost in order to
prevent an epidemic (Mackscheidt 1997). Mackscheidt explicitly recognizes the connec-
tion between the concept of public and merit good for dealing with the free rider problem
inherent in the provision of public goods. He also recognizes that “meritorisation” of a
public good can only be done for sufficiently meritorious public goods.
149
David Schmidtz does not use the concept merit good, but he develops a similar argu-
ment when he writes that the use of governmental coercion requires additional arguments
beyond the public good’s argument of efficiency (Schmidtz 1991, XVI). For Schmidtz, the
fact that coercive production of public goods would involve the survival of society would
be an acceptable argument (159). He mentions that others might use the argument of equal-
ity (XVI). He also demands that the government use “sufficiently delicate way[s]” to pro-
vide public goods (ibid.). See also footnote 112.
140 6. The Concept of “Public Good”

prove their gains at the expense of another group.150 It is a serious warn-

ing, but potential abuses in the implementation of public goods should not
blind us to the real presence of potential gains for a collectivity captured in
the concept of public good. In short, the demerits of coercion must be
compared with the merits of the public good. This is truly a matter of
socio-economics or political economy.151
From the Samuelson theorem and the analysis of the Clarke tax pro-
posal, one could draw the conclusion that government involvement in the
provision of public goods should be abandoned. This might be too pessi-
mistic a conclusion. Rather, based on my conclusion one must accept the
idea that the provision of public goods will not always be Pareto optimal
and that there sometimes will be regrettable interference with the prefer-
ences of some consumers. A farmer’s land might be expropriated for
building a highway. An airport might be built notwithstanding objections
to the noise by nearby home owners. It might be possible to recompense
the farmer at estimated market value, and it might be possible to impose
limits on the noise of airplanes. The first solution tries to approximate
Pareto optimality. The second solution tries to balance the nuisance in a
way that many, if not all, parties involved can accept, even if they all pro-
test. The realization of the gains promised by the public good concept also
involves an analysis of the social and political aspects of society.
Samuelson’s public good’s theorem is pure economics. The realization of

150
Sandler, expanding the ideas of Olson, gives an argument on why such abuses might be
unavoidable or might even be pursued consciously. He writes, “To foster collective ac-
tion...institutional design may have to engineer a sufficient skewness of benefits to promote
participation among agents who are best positioned to make a difference” (Sandler 1992,
197). Thus, if the medical associations and insurance companies were best positioned to
make a difference in creating a national health insurance, then the argument demands that
these agents be given exaggerated benefits in order to ensure their participation. However
politically effective this advice might be, it is a frightening argument in as much as it ad-
vices the state to be unjust in the name of effectiveness!
151
If the government finances public goods by means of general revenue and not by user
fees, then a new argument emerges demonstrating the socio-political dimension in the im-
plementation of public goods. Indeed, any time that the government has limited revenues,
it encounters an additional constraint when trying to realize public goods. Besides the eco-
nomic constraint of selecting only those projects where the willingness to pay is greater
than the cost, the government faces the additional constraint that it lacks revenue to pay for
the realization of all economically justifiable public goods. The question arises as to which
of those economically justified public goods will be realized. It will be those that the socio-
political process considers most meritorious. As merit criterion one could choose a purely
economic criterion (greatest percentage surplus of willingness to pay over cost of the pro-
ject), a political criterion (which projects will provide most votes?), or a moral criterion
(which project will help the least well of the most?). The choice between these different
criteria is not a purely economic matter (Stretton & Orchard 1994).
 IV. Implementation Problems 141

the gains connected with public goods requires a broader form of reflec-
tion: it requires socio-economics.

B. Olson: Impossibility of Exclusion

Olson is an author who does not look for the government to realize the op-
portunity for gain present in public goods. He studies the conditions under
which individuals acting out of self-interest will provide a public good.
The crucial characteristic of public goods that will act as a disincentive for
paying voluntarily is the non-exclusion possibility (i.e., even if one does
not pay one cannot be excluded from enjoying the public good once it is
provided). Notwithstanding this disincentive, public goods are sometimes
provided voluntarily by collective action financed by dues or fees. The so-
lutions for overcoming the disincentive of non-exclusion possibility are
different in small, medium and large groups.
Olson mentions three methods to overcome the problem of providing a
public good in a small group. One person might have enough interest in
the public good to alone finance the good, as in the case of a family with
teen-age daughters wanting the safety of a light in the back alley. If the
most interested person is not willing to pay alone, he might create social
pressure by organizing a social gathering and proposing a burden-sharing
where the holdout’s are socially embarrassed. Finally, the person most in-
terested in the public good might demonstrate to all the participants that a
minimum contribution of each is required to collect enough for the provi-
sion of the public good. The most interested person, the leader, makes the
members of the small group aware of the undeniable connection between
their contribution and the provision of the good. The non-exclusion possi-
bility is dealt with in this last case by demonstrating that the non-
exclusion possibility will not apply since the good itself will not be pro-
vided if everybody does not contribute or does not contribute enough.
Bargaining is still a possibility, but it is diminished by the logically dem-
onstrated possibility of non-provision in case of lack of payment.
For medium groups, it is unlikely that the first strategy, that of one per-
son paying the total cost of the public good, will occur often. The other
two strategies can still be used: social pressure (a list of contributors to the
church organ is published) and demonstration of connection between pay-
ment and provision (a publication of total cost, payments received and as-
signed payments to reach the goal of, say, building a new parish center).
Holding out and underpayment remain possible strategies, but the potential
gains created by the non-exlusion possibility are made less attractive by
the creation of social pressure and individual guilt.
142 6. The Concept of “Public Good”

With large groups (workers interested in safety in the workplace or citi-

zens interested in preserving the ozone level) the two remaining strategies
that could be used in groups of medium size lose much of their importance.
Indeed, the connection between the payment of one individual and the pro-
vision of the public good is almost non-existent (the payment or non-
payment of union dues by one worker will not change the prospect of bet-
ter safety laws; similarly, the contribution of one citizen will not measura-
bly change the ozone level). The paradox with public goods for large
groups is that the payment of dues or fees for the public good by any one
person is both personally significant (union dues are substantial) while it is
insignificant with reference to the total cost of the public good and, thus, to
the level of additional provision and additional enjoyment. It is, therefore,
not economically rational for members of large groups to pay for their pub-
lic good. But, if all members of the group follow their private economic
rationality, then the public good for the group will not be provided. Para-
doxically, private rationality leads to collective irrationality. Adam Smith
said it well when he wrote:

...it can never be for the interest of any individual, or small number of indi-
viduals, to erect and maintain [certain public works and certain public insti-
tutions]; because the profit could never repay the expence to any individual
or small number of individuals, though it may frequently do much more
than repay it to a great society. (Smith, 651)

Olson observes that some groups are able to provide their public good
notwithstanding the logical difficulties just described. Olson then asks the
question: How do they do it? Olson argues that the successful provision of
a public good for large groups consists of a two-step process. First, the po-
tential beneficiaries of the public good must be mobilized. The latent
group must become an active group. Second, the active group can then
pursue its public goods (unions may seek legislation promoting work
safety). In order for a latent group to become mobilized into an active
group, there needs to be a leadership that articulates the goals of the group.
Articulating the goals of the group is not sufficient for overcoming the dis-
incentive created by the non-exclusion possibility for public goods benefit-
ing large groups. Individuals simply do not have the personal incentive to
voluntarily contribute to public goods that benefit large groups (Olson
1968, 44). The leadership, thus, needs to create private incentives associ-
ated with the membership in the large group (Olson 1968, 132). The lead-
ership of some groups have natural incentives available (decrease in mal-
practice insurance for physicians becoming members of the AMA) while
leaders of other groups must rely on more artificial incentives (Christmas
parties, picnics, credit unions). In both cases, the mobilization of the latent
 IV. Implementation Problems 143

group into an active group requires that the selective incentives for joining
the group are large enough to motivate the individual members to pay their
dues or fees to the group. The dues or fees can then be used to provide the
public good for the group.
Several critical remarks can be made about the voluntary provision of
public goods by the mobilization of latent groups using private incentives.
First, the solution is not optimal because the provision of the public good is
not determined by its usefulness but, instead, by the success or failure to
mobilize the latent group. If the mobilization fails, then the good will not
be provided.152 If the mobilization succeeds, then the public good will
tend to be overprovided because the willingness to pay dues is not limited
by the usefulness of the public good, but also, if not mainly, by the attrac-
tiveness of the selective incentives which are often unrelated to the pri-
mary public good targeted. If the mobilization of the latent group suc-
ceeds, there is overabundance. If it fails, there is famine.
A second critical remark concerns a suggestion of Olson about large
groups that fail to mobilize themselves. Olson suggests that it might be the
case that the mobilization of a group is the easiest, if not the only, way to
realize the provision of a public good (work safety laws promulgated under
the pressure of unions). Might it not be justified for the government, so
Olson asks, to create artificial incentives for the relevant latent group so
that they can mobilize themselves, and thus, become the engine for the
provision of a desirable public good? Through legislation – authorizing
union shops or closed shops – the government can create a legal situation
that provides workers who want work, with private incentive to join un-
ions. Olson understands that his suggestion involves the use of the gov-
ernment’s coercive power as part of the strategy to promote the provision
of certain public goods. Accepting coercive power for the provision of a
public good rests on the meritorious judgment that the public good is worth
the loss of some degree of freedom. This is not a purely economic analysis
whose recommendation is justified because it is Pareto optimal. Instead, it
is a recommendation based upon the declaration that a good—in this case a
public good—is also a merit good. Declaring that a good is a merit good
means that economic opportunities may be evaluated against the loss of
some freedom. Certain societies are more willing than others to declare
goods merit goods (e.g., railroads, banking, clean rivers). Furthermore,
different states and countries have different political methods for validly
declaring that some goods are merit goods (voting along party lines might
or might not be possible to impose; two third majorities might be required

152
“The existence of larger unorganized groups with common interests is therefore quite
consistent with the basic argument of this study...they also suffer if it is true” (Olson 1968,
167).
144 6. The Concept of “Public Good”

for some laws; courts might be able to routinely overrule legislative votes
on constitutional grounds or they might almost never have that opportu-
nity). Introducing a judgment based on merit about methods for providing
public goods radically transforms pure economic analysis into questions of
socio-economics.

Conclusions

1. Conceiving the idea of a public good as an ideal concept allows us to

show that there is an opportunity for gain.153 Samuelson’s analysis shows
us that the government is not capable of fully realizing that opportunity.154
Olson’s study demonstrates that voluntary provision through group forma-
tion also does not guarantee an ideal provision of the good. In short, the
ideal concept “public good” points to the presence of an opportunity for
collective gain, but at this level of analysis, the realization of that opportu-
nity remains a problem.155
2. Samuelson’s approach can be used to partially justify the claim of
Malkin and Wildavsky that the government cannot be counted on to opti-
mally provide a public good. Olson’s approach can be used to justify fur-
ther the claim of Malkin and Wildavsky that private initiatives can provide
some public goods.156
3. It is wrong, however, to hope that private initiatives will provide
public goods at optimal levels. That is the insight provided by Olson. It is,
again, wrong to suggest that demonstrated difficulties in realizing the op-

153
Because of the development of technology, the growth in population, and increased re-
source needs, Sandler, among others, argues that the relevance of the problem of collective
action connected with public goods will increase (Sandler 1992, 200).
154
The first of these two ideas–opportunity for gain–is proven mathematically within a
general equilibrium model for m public goods, k private goods and n consumers by D.K.
Foley (1967, 1970) and is labeled “a generalization of Lindahl’s equilibrium solution”
(1967, 66). The second idea is verbally conceded when the author writes: “There is ...no
reason to think that Lindahl equilibrium can be embodied by any working political process
because it requires that individuals reveal information about their preferences under cir-
cumstances in which such a revelation would be to their disadvantage” (72).
155
Other authors ask themselves what kind of institutional arrangement (or incentive struc-
ture) would provide the equilibrium that best approaches the optimal allocation (Cornes &
Sandler, 1994, 377 ff.) But such an approach presupposes the validity of the concept of
public good, which is what I tried to establish in this paper.
156
This conclusion is similar to the position of others who also separate the two questions
of, on the one hand, the potential gain from collective action and, on the other hand, the
question of who needs to organize the collective action: the government or the private sec-
tor?(Adams & McCormick 1993, 113)
 Conclusions 145

portunities present in public goods justify saying that the very concept
“public good” is nothing but a social construct. Sometimes, there are op-
portunities for gain beyond atomistic economic activities.
4. It is a legitimate question whether private or governmental initiatives
are better at realizing those opportunities. Most likely, private initiatives
will be better in some cases, while government initiatives will be better in
other cases.157 But to accept that conclusion is to agree that the concept
“public good” is a valid, even though problematic, concept for analyzing
certain economic problems. If the solutions for realizing the opportunities
demonstrated by the concept “public good” have culturally and socially de-
termined components, it is wrong to claim that the concept of “public
good” itself is merely a cultural construct, whose sole validity consists of
an act of political will. In my view, the concept of public good has a
clearly defined ideal content, where – unfortunately – that ideal content is
empirically present only in varying degrees and has no agreed upon im-
plementation strategy .
5. The successful defense of the validity of the technical economic con-
cept of public goods provides us with a more precise way to articulate one
of the governmental functions vaguely pointed to by Hegel when he
writes:

...factors which are a common interest, and when one man occupies himself
with these his work is at the same time done for all. The situation is produc-
tive too of contrivances and organizations which may be of use to the com-
munity as a whole. These universal activities and organizations of general
utility call for the oversight and care of the public authority. (PR, # 235)

157
It might also be the case that a delicate cooperation between private and governmental
initiatives takes place as when clubs are allowed to privately provide public goods to their
members but where the government stipulates that discrimination on the basis of sex or race
is not acceptable. Another example, borrowed from Hegel, is the provision of great public
works by means of monetary taxation instead of forced participation as in the building of
Egyptian pyramids. Monetary taxation allows each individual to chose by what work one
will earn the money to contribute to the cost of the public good instead of being forced to
help directly in the provision of the public good (Hegel 1967 a, # 236 remark; Priddat 1990,
95–107; also Chapter 3, Section III of this book) . The substitution of taxes for direct par-
ticipation has only recently been extended to military service and seems reversed in cases
where prisoners are forced to work on public works as a means to pay for the cost of the
public good of imprisoning them. Clearly, these last examples remind us that values are in-
volved in the choice of method of payment of a public good. Indeed, changing to a volun-
teer army where combatants are paid leads to an increase, percentage-wise, in the poor who
serve in the army. This raises value judgments which cannot be handled solely by the eco-
nomic arguments of the concept of public good. It raises (de)meritorious questions of an
ethical and political nature and brings us again into socio-economics.
146 6. The Concept of “Public Good”

In more precise language we can now say that the government may have
a role to play whenever there are important public goods.158 In some cases,
the government may be called to provide the public goods by itself
(bridges, highways), in other cases, the government may be called to an
oversight role when private groups try to realize the public good (clubs
with discriminating membership rules). It was these potential governmen-
tal roles that Malkin and Wildavsky hoped to deprive of legitimacy by
questioning the validity of the concept of public good.

158
I therefore agree with the main thesis of a book by Levine that the correct starting point
of economic science must be “political economy” (Levine 1977, IX). My defense for the
concept of merit good in the previous chapter was a contribution in the same direction.
 Part II

Applications
 Section I

Reflections on the Political Economy in the US

7. Structural Deficiencies in the American
System

Abstract

Hegel reflected upon the desirable connections between the economic and
the political domain. He saw a number of structural difficulties that had to
be addressed. Some of the solutions that he himself advocated are now
unacceptable. Still, the new approach developed by the United States does
not seem to be satisfactory either.
The work of Goetz Briefs teaches us how the structural difficulties,
pointed to by Hegel, develop into specific anomalies in all Western coun-
tries. The work of Mancur Olson, Jr. teaches us that countries blessed with
uninterrupted democracies are burdened with an economic growth retar-
dant. The work of Theodore Lowi points to the specific anomalies gener-
ated by the deficient American approach to those structural difficulties.
All three authors see the emergence of interest groups, which dominate the
political scene, as the concrete form of the structural difficulties inherent in
combining the free market with democracy.
A public religious document – Catholic Social Teaching and the U.S.
Economy (U.S. Bishops’ Pastoral, 1984) – both praises and criticizes the
American situation. The descriptive criticism by the religious document
supports the theoretical criticism of Briefs and Lowi and could be called an
illustration of Hegel’s claim that in all its richness, a society based on the
free market is not rich enough to deal with poverty.

I. After Nozick and Rawls

In the 1970's two important books in political philosophy were published:

Rawls' A Theory of Justice and Nozick's Anarchy, State, and Utopia.
These two books give a crucial importance to the concept of freedom in
terpreted as liberty – that is, the possibility of an individual to choose
without undue restrictions by the government.
152 7. Structural Deficiencies in the American System

Of the two, Nozick goes the farthest in defending the principle of liberty
as the basis of societal organization. Indeed, Nozick restricts the functions
of the state to those normally associated with the “minimal state”: protec-
tion of “all citizens against violence, theft, and fraud and...the enforcement
of contracts.”159
Nozick eloquently states the reasons for so restricting the functions of
the state in the last paragraph of his book:

The minimal state treats us as inviolate individuals, who may not be used in
certain ways by others as means or tools or instruments or resources; it
treats us as persons having individual rights with the dignity this constitutes.
Treating us with respect by respecting our rights, it allows us, individually
or with whom we choose, to choose our life and to realize our ends and our
conception of ourselves, insofar as we can, aided by the voluntary coopera-
tion of other individuals possessing the same dignity. How dare any state or
group of individuals do more. Or less. (333-334)

By jealously stressing the principle of liberty, Nozick affirms a noble

aspiration in American political practice and theory. However, as John
Langan writes, such an affirmation “is likely to strike most readers as re-
ferring to a different order of things than we find in the grandeur and mis-
ery of human endeavor” (1977, 256). More specifically, many an author
has stressed the fact that the power of the state has to be used to restrain
economic power in order to maintain free competition and to generate a
distribution of goods and services that is morally acceptable.
One can think of Rawls' A Theory of Justice as a work that can be used
to give to the state a redistributive task. Still, Rawls maintains the princi-
ple of liberty as the first principle of a just society (1971, 244). However,
Rawls adds a second principle which deals with “social and economic ine-
qualities” or with “the distribution of income and wealth and...the design
of organizations that make use of differences in authority and responsibil-
ity, or chains of command” (60–61).
This principle goes under the name of the “difference principle.” Rawls
deduces his two principles by creating a fictitious situation in which par-
ticipants, under a veil of ignorance concerning their own particular situa-
tion, choose the principles by which the just society is to be organized.
But as Langan has remarked, such a technique

involves a dualism between the noemenal selves who choose in the original
position, and the phenomenal selves who suffer not merely from the biases
of interest but also from the urgings of need. Adopting the standpoint of the

159
Nozick 1974, 26. The minimal state is also called the “night watchman” state or the
“protective state.” see also footnote 99.
 II. Justice. Concern for the Common Good 153

noemenal selves of the original position and maintaining it in such a way

that the principles of justice can be applied in our present sublunary world
of conflicting interests may well be a more difficult task and may require a
more fundamental conversion than trying to instill and maintain an attitude
of benevolence. (1977, 350)

Clearly, the criticism of Nozick and Rawls by Langan opens the way for
further philosophical reflection on the concrete conditions for the good so-
ciety in our contemporary world. This is precisely what I propose to do in
this chapter. In section II, I will analyze how American capitalism or late
capitalism in general has been transformed, under the motivation of the
liberty granted to the citizens of Western democracies, into a new
economico-political order known as interest-group liberalism or laissez-
faire-pluralism. I will use the writings of Lowi, Briefs and Olson to dem-
onstrate that in this new order, the pursuit of justice or of the common
good is so absent that there is cause for alarm. In section III, I will return
to Hegel who, at the dawn of capitalism tried to stipulate the institutional
conditions for combining justice and liberty in such a way that real free-
dom would be available for all citizens. Unfortunately, I will have to ar-
gue that some of these institutional requirements are absent in American
capitalism. In section IV, I will evaluate the analysis of the American
economy made by the Bishops' Pastoral on Catholic Social Teaching and
the U.S. Economy and demonstrate that the criticism presented in this reli-
gious document is consonant with the criticism extracted from the writ-
ings of Hegel, Briefs, and Lowi.

II. Justice. Concern for the Common Good: The U.S. Sys-
tem and “Interest Group Liberalism” or “Laissez-Faire
Pluralism”

The American economic system started to dominate the world scene in the
second phase of capitalism. That second phase has been described aptly
by Theodore Lowi as “interest group liberalism,” by Goetz Briefs as “lais-
sez-faire-pluralism,” and by Olson as the period of “collective action”
(Lowi 1979; Briefs 1957 b; Olson 1968, 1982, 1983).
In his book, The End of Liberalism, Theodore Lowi analyzes the
American scene from 1930 onward. He argues that a new kind of relation-
ship developed between the free market and the state. He sees interest
groups as the moving forces. He does not focus on the history of ethics
154 7. Structural Deficiencies in the American System

and ethos patterns as we will see that Briefs does. Lowi concentrates, in-
stead, upon the formal changes that have occurred in the United States.
According to Lowi, the changes in the relationship between the state
and the economic order are of such a magnitude that he calls the new state
of affairs “the second republic.” The first republic (which lasted, depend-
ing upon the criteria used, until about either 1930 or 1960)160 was a federa-
tion in which most of the governing was done by the states. The little gov-
erning done by the federal government was done by congressional
legislation. The second republic is characterized by the fact that the func-
tions of the government and the size of its bureaucracies have increased.
In particular, the federal government has accepted the functions of regula-
tion and distribution. The first function leads to a kind of national police
power in economic affairs; the second to a fiscal and monetary policy.
This extension of governmental tasks leads to a government centered
around the executive; it also leads to Congress delegating its legislative
powers to agencies which are supposed to fill out the details of legislation,
based on Congress' intent. There is, in effect, a shift in legislative power
away from Congress and towards administrative agencies.
Lowi mentions three presidents who contributed in important ways to
building this new republic. The first was Franklin D. Roosevelt with his
New Deal. The second was John F. Kennedy, who defined the problems
of the United States as non-ideological, but complex. These problems
could be addressed, he claimed, by the President and a professional bu-
reaucracy. He therefore requested, in his 1962 Economic Report, for in-
stance, vast discretionary powers. The third was Richard M. Nixon. He
requested from Congress the authority for revenue-sharing, which gave the
President even more discretionary power.
But clearly, if governmental decisions are not made by Congress, they
do not undergo the mediating process of public debate and modification.
In order to have some mediation, the executive substituted for the public
debate in Congress (Lowi 1979, 278) a bargaining process with the af-
fected interest groups. Lowi calls this state of affairs socialism for the or-
ganized interest groups (279). He also calls it the state of permanent re-
ceivership, in as much as it is a state of affairs that protects industries,
corporations, or economic activities that cannot stand on their own, pro-
vided that they are organized and can bring political pressure to bear. The
state achieves this goal by means of regulatory or fiscal policies.
Lowi does not object to all government regulations or all fiscal policies.
He objects to the discretionary method of applying these policies. Thus, he
favors the unconditional guarantee of all deposits of up to, say, $40,000 (it
160
It is 1930 if one starts a new period with the emergence of the “new republic”; it is 1960
if one starts the new period with the maturation of the “new republic.”
 II. Justice. Concern for the Common Good 155

was later increased to $100,000) in all banks that are members of the Fed-
eral Reserve System. He objects to the discretionary power to guarantee
loans that was enjoyed by the Emergency Loan Board. Such a discretion-
ary power invites bargaining. It thus becomes tremendously pro-
organization and pro-establishment. It is also inefficient and prevents in-
novation. More importantly, it bypasses the requirement of public debate
over the purpose and the morality of such public decisions. Having by-
passed public debate, the second republic, or interest group liberalism,
cannot, according to Lowi, achieve justice. Indeed, a minimal requirement
for justice is that decisions be made according to a just rule because
“Without the rule, the whole idea of justice is absurd” (296). Bargaining
democracy is putting its faith in the process, not in the rule.
Lowi sees the solution to the problem in what he calls juridical democ-
racy. Lowi likes to see the government restrict its scope and return the leg-
islative duty to Congress. He wants specific legislation from Congress. He
wants, from federal agencies, administration by rule, not a case-by-case
approach. His hope is that Congress would then be forced to debate the
legitimacy of governmental actions.
Furthermore, Lowi believes that the need to publicly debate the legiti-
macy of governmental acts before they are implemented will automatically
give a place to moral concerns. Thus, he argues, “the powerful would be
immobilized if they had to articulate what they were going to do before
they did it” (298) or that “it would simply not be possible to support segre-
gation in any form, because a [juridical] democracy cannot abide two sys-
tems of law, two criteria for the provisions of government services – in
brief, unequal protection of the laws” (299).
Briefs presents a critique similar to Lowi’s critique of contemporary
democratic capitalism. Briefs’s specific contribution, though, is the fact
that he presents an analysis which allows us to locate the American eco-
nomic order within the context of the whole capitalist system. Indeed,
Briefs’s writings include reflections upon the rise and development of
capitalism from its beginnings. His writings also cover more than the eco-
nomic, political, and juridical aspects of capitalism; indeed, Briefs’s writ-
ings also analyze the cultural components of the capitalist system, such as
its philosophical traditions, its religious movements, and its ethical convic-
tions and practices. Briefs’s oeuvre can therefore usefully broaden the
knife-sharp critical analysis of the American economic order made by
Lowi.
Briefs rejects the belief that commercial society combined with a consti-
tutional state is the embodiment of the good society, because the advent of
the commercial society was promoted by forces which have now given rise
to a new, questionable social order. Among the circumstances that make
156 7. Structural Deficiencies in the American System

the commercial society (capitalism) possible are, according to Briefs, those

which undermine the existing ethics and ethos pattern. Instead of a com-
munal, religiously-bound ethic, modern times saw the emergence of a new
ethic, an ethic that defines human relations according to the model of rela-
tions existing between alien classes, for instance, the relations between
traders, merchants, and colonized people. This new ethic, then, will de-
fend the right of individuals to act according to their own personal interest.
However, the excitement about commercial society was tied to the be-
lief that individuals would act according to enlightened self-interest, not
short-sighted, or purely egoistic self-interest; to the belief that the possibil-
ity of self-interest leading to harmful actions would be checked by eco-
nomic competition; and finally, to the belief that individuals would adhere
to traditional standards of human behavior.161
The rising middle class made commercial society a reality. It resulted
in major “social disruption and swift decline of marginal standards” of eth-
ics (Briefs 1957 a, 53). As Briefs notes, these social disruptions are well
documented in the social and economic literature of the nineteenth century,
in the Committee Reports of the British House of Parliament and in the
Reports of the factory inspectors (54).
One of the reactions to these social disruptions which had long-term
consequences was the organization of individual economic players to make
concerted action possible. The first to organize themselves successfully
formed the Amalgamated Society of Engineers in 1851. This self-
organization of workers was followed in Europe by the organization of
peasants. In the depression of 1873 to 1898, business organized itself into
cartels. The last to be organized were the professions and government em-
ployees (55–56). The transformation of the free market economy from a
competitive order between individuals to a competitive order between
groups became generally accepted. Promoting that transformation became
part of public policy after World War I in Europe and after the Great De-
pression in the United States.162 The war, particularly in Europe, had led
to the belief that the economy could be directed. It was felt, further, that
the task of directing the economy would be easier if the economic subjects
were themselves organized. Finally, social Darwinism was replaced by a
“desire for security, for stability, for the good things in life, for the rights
of the common (person), and a sense of belonging to a sheltering collectiv-
ity” (56). Thus was created the favorable environment for the maturation
of interest-groups. This same environment promoted the misunderstanding
of those interest groups, and there were valid reasons for misinterpreting

161
For a report on the different interpretations on what actually happened, see Hirschman
1982.
162
Though cartels were mostly prohibited in the United States.
 II. Justice. Concern for the Common Good 157

them. Indeed, the unions, farm associations, and cartels “were formed to
secure some degree of justice in these respective markets, a degree of jus-
tice which the 'blind forces' of the supply and demand apparently failed to
produce” (58). Furthermore, these interest groups claimed to represent
large social strata such as labor, the farming community, business, etc. Fi-
nally, the interest groups appeared to be instruments for the reform of the
old order.
Briefs’s thesis, however, is that the emergence of interest groups is a
second phase of liberalism. It is a second phase because the principal ac-
tors are different. In the first phase there were, or were supposed to be,
only individuals and small firms. The first phase of the free market was
supposed to be atomistic competition. In the second phase of capitalism,
group-formation is tolerated, encouraged and legitimated. Briefs calls it a
second phase of liberalism, because it adopts the same ethics of behavior
between aliens as exists in the first phase. Indeed, interest groups replace
individual interests. Interest groups defend the proposition that their inter-
ests can be maximized without too much concern for the consequences of
their actions upon other groups or upon the society as a whole. Further-
more, just as in the first phase of capitalism, competition (now between
groups) is hailed as the regulating mechanism. And just as in the first
phase, the new economic agents (the interest groups) strongly oppose state
interference even though they may welcome the help of the state to pursue
their interests.
Thus, the erosion of ethical standards and ethos patterns unavoidably
continues. This submarginal ethical behavior creates new burdens. Organ-
ized groups will be able to carry their burdens by shifting them upon the
anonymous unorganized masses. In the recent past, a major technique to
achieve this has been inflation. Since the distributive effects of inflation
hit different groups in different ways, inflation is basically unjust—as
Keynes has already argued (Keynes 1963, 82, 103).
Briefs gives five reasons for the erosion of ethical standards in a society
organized around interest groups (62–63). First, interest groups have
adopted pleonexic policies. This is expressed very well in the statement by
Sam Gompers: “More and more and ever more.” Second, power searches
for ever-widening horizons for group competence and jurisdiction. Third,
our secularized civilization produces a universal urge for security, a secu-
rity which must be foolproof. Fourth, the principle of subsidiarity is being
undercut.163 This principle requires that a lower social organization be al-
lowed to perform the tasks it can perform. However, for this principle to
work, the lower social organizations need to be willing to take responsibil-
163
The subsidiarity principle is a crucial principle in contemporary Catholic social teaching.
One finds a good short description of this principle in Rahner 1968/1970, vol. II, 356–357.
158 7. Structural Deficiencies in the American System

ity. Typical of interest groups is that they do not accept responsibility for
their own actions, but appeal to the state to do so in their place, for in-
stance, by requiring import restrictions or loan guarantees in order to rem-
edy negative consequences of their own decisions. Finally, a secular gov-
ernment does not acknowledge a God-ordained natural law and will
therefore inevitably borrow its own ethics from the existing social order.
This leads Briefs to draw the conclusion that under the pressure of inter-
est groups and because of the lack of a metaphysical view of humanity and
society, democracy itself has changed. The first transformation occurred
when, during the Enlightenment, rationalism undermined the need for a
metaphysical foundation for the state through its contractarian, utilitarian,
or popular sovereignty arguments. The second transformation occurred
when rationalism was unable to define the common good. Democracy
then became expediency in the form of bargaining democracy. In such a
democracy, the state bargains with the interest groups involved. Neither
the bargaining interest groups nor the government are willing or able to
guide their decisions in light of a common good. Briefs calls this unhappy
situation “the meeting of the secondary phase of liberalism with the terti-
ary phase of democracy.”164
Still, this pessimism is not Briefs’s last word. He does not present a de-
tailed plan of action as Lowi has done. Instead, he points to the limits and
the possibilities which the new situation has created. It is Briefs’s convic-
tion that the emerging awareness of these limits and possibilities creates
the opportunity to search and to affirm ethical principles explicitly. Let us
quote the eloquent words by which Briefs introduces the conclusion:

A degree of freedom exists, and there are functions of the state that are vital.
But we realize now as never before the existence both of a realm of neces-
sity ruled by economic laws and of a variable zone of freedom. Because of
this freedom, ethics again has a place in economic life and hence, going
even further than Max Weber's admission of “value relations,” a place in
economics proper. The era of determinism accommodated by silent and im-
plicit ethical assumptions is over. (Briefs 1957 a, 75)

Whereas Briefs’ conclusion that interest groups have pernicious influ-

ences is based upon a socio-economic analysis of the history of Western
civilization, Olson comes to the same conclusion on the basis of a very fo-
cused study. Indeed, Olson asks two questions. First, why is it that Eng-
land has such a low growth rate now when during the industrial revolution

164
Briefs 1957 a, 67; see also Briefs 1966, 48, 77, 264, 281, 286. Here Briefs calls it the
third phase of liberalism. That third phase he defines as the period in which the interest
groups are independent variables; they are a state in the state (Id., 48–49).
 II. Justice. Concern for the Common Good 159

it used to have the highest. Second, why have Germany, Japan and France
all much higher growth rates (Olson 1982, 3 ff.; 1983, 8–9).
In order to answer this question, Olson starts by rejecting a number of
explanations such as the claim that there must be a difference in industri-
ousness between the English and the Germans, Japanese and French; or
that the British have an anti-commercial attitude that keeps the ablest and
best educated away from business pursuits; or that the British ruling elite is
inclined to embark on un-economic prestige projects such as the building
of the Concorde. Olson rejects these arguments because they cannot ex-
plain why England once had the fastest growth rate while it now has the
slowest (Olson 1983, 9–13).
Olson proposes as his explanation the idea that a growth retardant be-
comes over time more burdensome (Id, 12). Such an explanation needs to
show why the growth retardant has become more burdensome in Great
Britain than in Germany, Japan and France.
Olson uses as growth retardant the creation of interest groups to pro-
mote public goods that are of special benefit to the members of the group.
He uses three steps in his argument. First, he relies on a previous publica-
tion to remind the readers that the provision of public goods benefitin-
glarge groups requires the creation of an organization whose main purpose
is looking after the interests of the individuals linked by a joint concern for
the same public goods (Olson 1968, 9–16, 132–167; Olson 1983, 13–16).
Thus, according to Olson’s argument, safety in the work place requires the
presence of unions pressing for work safety laws. In a second step, Olson
points to the historically known fact that groups will not be organized until
some time after their common interests have emerged (Olson 1983, 16)
and that once organized they are not likely to disappear (Id., 18). As a
consequence, developed democracies accumulate more special interest or-
ganizations as time goes on (Id., 17). Although, sometimes, interest
groups pursue goals that improve economic efficiency (construction lob-
bies opposing usury laws; farm organizations opposing tariffs on farm
equipment) (Id., 19), they more often lobby for policies that diminish eco-
nomic efficiency (labor-unions trying to block labor-saving innovations;
sugar beet producers lobbying for tariffs on imported cane-sugar) (Id., 19).
In a dynamic economy, interest groups tend to oppose changes that would
threaten relative advantages of their members (Id., 19 ff). Economic
growth is to a large extent the result of the introduction of appropriate
changes (adjustments to new circumstances; introduction of new and better
technologies). In as much as interest groups are motivated to resist many
changes, they are behaving as a growth retardant. In the third step of his
argument, Olson compares the vicissitude of this growth retardant in Eng-
land, the country with low economic growth, and Germany, Japan, and
160 7. Structural Deficiencies in the American System

France, countries with a high economic growth. Olson sees as main differ-
ence between these two categories of countries, the fact that Great Britain
has experienced centuries of uninterrupted normal functioning of democ-
racy (Id., 26), whereas the group of other countries have not. Indeed, Ger-
many and Japan have been defeated in the second world war and the occu-
pational forces abolished the privileges that the special interest groups had
in those countries (Id., 25). Although France has not been defeated and
occupied by a foreign country since 1870, it has not experienced political
stability. Since 1789, France has introduced several new constitutions
which undid the advantages of favored interest groups of the previous re-
gime (Id., 26).
Olson’s theory, created to explain the slow growth of England and the
faster growth of Germany, Japan and France, thus leads to the conclusion
that a country with a longer history of stability and freedom of association
will have accumulated more interest groups.165 Their activity creates a
growth retardant because these groups do not aim, in the language of
Briefs, at the common good but aim at policies that benefit narrow group
interests, even if these policies are harming society as a whole.
From the studies of Lowi, Briefs, and Olson, it is clear that the combina-
tion of democracy and the interest-group phase of capitalism has negative
consequences. These consequences are of such proportion that Lowi ar-
gues that such a society is not just, Briefs argues that the common good
cannot be guaranteed, and Olson argues that uninterrupted democracies are
burdened by an economic growth retardant.
It is curious that democratic capitalism ends up in this situation, for it
had been conceived of as a new societal organization that would replace
one dominated by the ideals of chivalry. This chivalric ideal had been dis-
credited in the 16th and 17th century by such authors as Hobbes, La
Rochefoucauld, Pascal, Racine, and Cervantes (Hirschman 1982, 11). In-
stead, the image of a commercial society emerged as an attractive alterna-
tive to the chivalric society with its passionate and savage exploits of the
aristocracy and the experience of looting armies and murderous pirates
(Id., 63). Hirschman sums it up well when he concludes his survey of the
history of the arguments for capitalism before its arrival:

Capitalism is...hailed...because it would activate some benign human pro-

clivities at the expense of some malignant ones—because of the expectation

165
Olson describes a study, by a graduate student of his, which compares the length of time
a state is part of the federal state and their economic growth. The study finds an inverse re-
lation between the time a non-confederate state is part of the federal state and growth rate.
In the states of the Confederate South, where an occupation destroyed existing privileges of
interest groups, economic growth was faster than in the Union states (Id., 33 ff.).
 III. Freedom. Hegel’s Good Society 161

that, in this way, it would repress and perhaps atrophy the more destructive
and disastrous components of human nature (Id., 66).

If we want to understand the transformation from the optimistic

hopes projected into democratic capitalism in the 18th century to the
critical disappointment we notice in 20th century authors such as
Lowi and Briefs, we will need to analyze the basic structures of de-
mocratic capitalism. I intend to do so in the third part of this chapter
by means of Hegel's analysis. Both Lowi and Briefs connect their
critical appraisals of contemporary democratic capitalism to the ab-
sence of or the ineffectiveness of the political control of the eco-
nomic order. It is precisely this problem that is central to Hegel's re-
flection.

III. Freedom. Hegel's Good Society

Hegel drew upon Adam Smith and other British economists for his under-
standing of modern society. It is true that Hegel’s ideal society combines a
capitalist free market system with a constitutional monarchy. It is equally
true that the United States is not and will not become a constitutional mon-
archy. Nonetheless, Hegel is an important witness here because he shares
with us a sense of the goals of the economy but he deliberately chose a
monarchy and a different legislative structure over the democratic system
of the United States; and his reasons for doing so are very instructive.
I will first analyze the demands Hegel makes upon the political system.
Second, I will analyze how Hegel believes that the free market as corrected
and guided by a proper political order can guarantee freedom in the post-
industrial society.

A. The Government

Crucial for the good society, as Hegel sees it, are a number of institutional
arrangements which must guarantee that the state will reflect the interests
of the individual while allowing the state to effectively promote the com-
162 7. Structural Deficiencies in the American System

mon good.166 Such an arrangement will, Hegel hopes, elicit the emotional
respect of the individuals for the state in the form of patriotism.
As institutional arrangements are a prerequisite for the good soci-
ety, they must be firmly guaranteed. Such a guarantee occurs in the consti-
tution. It is possible to interpret Hegel's view of a constitution in such a
way that it looks very much like the American political practice. Hegel
stresses the need for a head of state because only an individual – not a
group or a committee – is able to represent the unity of the state (PR, #
320). Hegel also stresses the need for separation of executive, legislative,
and judicial branches of government. Furthermore, Hegel argues for two
legislative houses. One is supposed to be more closely in touch with the
individual interests of society – the lower house or, in the United States,
the House of Representatives; the other is supposed to be more concerned
with the common good of the state – the upper house or, in the United
States, the Senate. Finally, Hegel gives important consideration to civil
servants and the bureaucracy.
There is another way of interpreting Hegel's view of the good society
though, which highlights the differences between Hegel's ideal view of a
free state and the practical realization of freedom in the political system of
the United States. For that interpretation, one can draw attention to the
fact that Hegel argues against an elected head of state but for a hereditary
monarchy. He also argues that membership in the upper house of the leg-
islation should be determined by birthright and not by elections. Even
though the lower house was to represent the individual interests in society,
Hegel rejects general elections as a means to select the representatives.
Furthermore, Hegel assigns an educative function to the civil servant and
to the bureaucracy that is in sharp contrast with the United States’ admira-
tion of the individual entrepreneur and its condescending attitude towards
civil servants and bureaucrats. Finally, Hegel argues that the major eco-
nomic organizations have such an important public function that the state
should play a role in the appointment of chief executives of such organiza-
tions.
Let us analyze each of these differences. A major difference between
Hegel's view of the state and the American political practice comes from

166
Adam Smith formulated sharply a general threat to the common good in a free market
society coming from selfish political actions. He writes that the landlord and the worker do
not acquire the knowledge of the economic system in their daily tasks. The third class, the
employers do. But their interests are often different form those of the whole society and
they are screwed. Hence, he warns sternly, “The proposal of any new law or regulation of
commerce which comes from this order [the employers], ought always to be listened to
with great precaution, and ought never to be adopted till after having been long and care-
fully examined, not only with the most scrupulous, but with the most suspicious attention”
(250). Hegel’s proposals can be seen as addressing this warning.
 III. Freedom. Hegel’s Good Society 163

Hegel's rejection of an elected head of state. Hegel wants a head of state

and not a committee because only an individual can represent the unity of
the state (Ibid.). But, Hegel also expects the head of state to represent the
common good. One can count on both the conscience of the head of state
and on the constitution to promote and defend the common good.
There is one major factor by which the head of state might be enticed to
give in to individual demands at the expense of the common good. That
factor is the need to be (re)appointed or (re)elected as head of state. Be-
sides military coups, there are three main methods available to select a
head of state: inheritance, general popular elections, and restricted elec-
tions. Communist parties, or military regimes us restricted elections. They
were also used in the selection of an Emperor in the Holy Roman Empire.
The restricted elections of the Holy Roman Empire were an anachronism
in Hegel's time, and he does not even give an argument against them.
Whereas the United States has chosen a modified form of general elections
for the choice of a head of state, Hegel opts for a hereditary monarch.167
Hegel argues that a hereditary monarchy saves the state “from the risk of
being drawn into the sphere of particularity and its caprices, ends, and
opinions, and...from the war of factions around the throne”(Ibid., # 281).
Hegel rejects the method of directly electing a head of state because this
would imply “that the ultimate decision is left with the particular will (the
vote of individuals), and hence the constitution becomes a Compact of
Election, i.e., a surrender of the power of the state at the discretion of the
particular will” (Ibid.). Now the economic order is the domain where the
particular will is allowed to flourish. Thus, Hegel's argument implies that
accepting a political system where the head of state is elected, as is the
case in the US, means that one accepts the risk of such an undue interfer-
ence of interest groups in the political process itself that the unity of one
state, of one nation, is threatened.
A second major difference is Hegel's rejection of general elections for
the selection of the two legislative houses. Hegel sees the legislative
branch of the government as the place where the mediation between indi-
viduals as they have integrated themselves in classes, associations, and
corporations on the one hand, and, on the other hand, the state as it is rep-
resented by the head of state, takes place.
To guarantee this mediating role structurally, Hegel proposes that the
upper house consist of the landed gentry and that the lower house consist
of deputies representing the important branches of the economic order
rather than individual citizens. By requiring that the upper house consist
of the landed gentry, Hegel hopes that the upper house will necessarily
167
For an article analyzing the crucial function of a monarch in Hegel’s political theory see
Cristi 1983.
164 7. Structural Deficiencies in the American System

mediate between the head of state and the economic order, without being
unduly influenced by personal gain. The landed gentry, Hegel thought,
had something in common with both the head of state and the economic
order. Indeed, the landed nobility participated in the economic order as do
all other economic subjects; on the other hand, the landed nobility obtained
its position not by means of its participation in the economic order, but by
inheritance. The landed aristocracy thus, just as the king, acquired its po-
litical rights by birth and not by virtue of its successful participation in the
economic order. Both are therefore structurally free to promote the com-
mon good. They need not fight structures or risk their political future to
promote the common good.
The lower house is also assigned a mediating role. They are to repre-
sent the “essential spheres of society,” (Ibid., # 311) for instance, trade and
manufacturers. They are not to represent individuals, for Hegel believes
that it is an illusion to think that people participate in the political process
as atomistic individuals. This belief is also the reason that Hegel objects to
general popular suffrage:

In large states it leads inevitably to electoral indifference, since the casting

of a single vote is of no significance where there is a multitude of electors.
Even if a voting qualification is highly valued and esteemed by those who
are entitled to it, they still do not enter the polling booth. Thus the result of
an institution of this kind is more likely to be the opposite of what was in-
tended; election actually falls into the power of a few, of a caucus, and so of
the particular and contingent interest which is precisely what was to have
been neutralized. (Ibid.; Buchanan 1974, 99–101)

Thus, the lower house should have some form of proportional represen-
tation that guarantees the presence in the legislative debates of the impor-
tant social groups. Its function would be precisely the public mediation
between the common good and the conflicting interests of these groups.
Hegel even hopes that the legislative debates, because of their public char-
acter, will educate public opinion so that the population better understands
the rationality of the affairs of the state (PR, ## 314–315).
A third difference is Hegel's understanding of the role of the civil ser-
vant and the bureaucrat. Hegel thinks that the civil servants and the mem-
bers of the state bureaucracies make a direct and indirect contribution to
the good society. The direct contribution they make is the fact that in
modern states, members of government bureaucracies are able to act ac-
cording to universal principles rather than according to subjective interests
or motivations (e.g., hatred, revenge) (Ibid., # 296), and thus, one can
come to expect that the transactions between the state and its citizens will
be conducted in a dispassionate, upright and polite demeanor. Hegel be-
 III. Freedom. Hegel’s Good Society 165

lieves that this fortunate manner of conduct of the bureaucrats is the result
of the long education of civil servants and of the ethical attitudes that they
develop because of their unique position in a constitutional free market
system. This prolonged education makes the civil servants capable of
grasping universal principles and makes them interested in pursuing the
common good. Hegel believes that the position of the civil servant in a
constitutional free market system gives a structural guarantee that the civil
servants will in fact act according to universal principles and pursue the
common good. Indeed, the civil servant in Hegel's ideal society mediates
the monarch's concern with the common good and the private sector which
is allowed to pursue private interests (Ibid., ## 295, 297, 297 addition).
Thus, the monarch educates the civil servants to see the common good.
But the private sector, with the right to pursue its private interests, will
fight “against the intrusion of subjective caprice into the power entrusted
to a civil servant” (Ibid., # 295). It therefore will pay off for a civil ser-
vant, Hegel believes, to be “dispassionate, upright and polite” (Ibid., #
296).
The indirect contribution made by members of government bureaucra-
cies to the good society, according to Hegel, is that by their numbers they
increase the middle class and by their influence they improve the charac-
teristics of the middle class. Indeed, Hegel believes that the interaction
(outside their working hours) of civil servants with other members of soci-
ety raises the thoughtfulness and the consciousness of what is right among
the middle class (Ibid., # 297 and addition). But, let me quote Hegel di-
rectly:

The middle class, to which civil servants belong, is politically conscious and
the one in which education is most prominent. For this reason it is also the
pillar of the state so far as honesty and intelligence are concerned. A state
without a middle class must therefore remain on a low level.... It is a prime
concern of the state that a middle class should be developed, but this can be
done only if the state is an organic unity like the one described here, i.e., it
can be done only by giving authority to spheres of particular interests, which
are relatively independent, and by appointing an army of officials whose
personal arbitrariness is broken against such authorized bodies. Action in
accordance with everyone's rights, and the habits of such actions, is a conse-
quence of the counterpoise to officialdom which independent and self-
subsistent bodies create. (Ibid., # 297 addition)

Clearly such a laudatory appraisal of members of government bureauc-

racies is most uncommon in the United States where a pragmatic philoso-
phy joins hands with a common resentment of bureaucrats. The popular
image of the bureaucrat in the contemporary United States is not that of the
one who implements justice and fairness, but that of the one, who by his
166 7. Structural Deficiencies in the American System

“red tape,” hinders progress and impedes normal day-to-day exchanges

and transactions.
A fourth and final difference between Hegel's ideal view of a free state
and the practical realization of freedom in the American political system is
the fact that Hegel believes that the major economic organizations have
such an important public function that the state should play a role in the
appointment of chief executives of such organizations (Ibid., # 288).
Hegel does not advocate a communist theory of the state, where the legiti-
macy of private and particular interests is very much restricted. Indeed,
Hegel starts paragraph 288 of his Philosophy of Right by claiming that
“Particular interests which are common to everyone fall within civil soci-
ety and lie outside the absolute universal interest of the state proper.”
However, Hegel does not accept the idea that the economic order should
exist as a more or less fully autonomous domain. Indeed, he explicitly
claims that “these circles of particular interests must be subordinated to the
higher interests of the state” (Ibid.). In the United States, the political or-
der has the right to regulate the free market because the constitution claims
to have as its purpose the promotion of the general welfare.168 The promo-
tion of the general welfare, though, is pursued very rarely by appointment
of the chief of a corporation – as is the case with the Postal Service. The
general welfare is more often promoted by regulation, e.g., fair-trade laws,
anti-trust legislation, rules for public utilities. Clearly subordination of the
free market by means of control of appointments (as advocated by Hegel)
provides a deeper form of subordination of the free market to the political
order than the prevailing method in the United States, where political or
legal regulation of business activity is the preferred method (e.g., rules of
the Food and Drug Administration, decisions by the Federal Trade Com-
mission).
If a modern society has a hereditary monarch and a constitution which
provides for an upper house where members are landed aristocracy, and
which provides for a lower house where the major interest groups have a
guaranteed proportional representation; if a modern society can further
count on the educating influence of the civil servants; and if finally, the
major economic organizations are made politically responsible, then,
Hegel believes, the free market can make a fundamental contribution to the
good society. It is now time to examine this claim.

168
The Constitution of the United States of America, p. 1.
 III. Freedom. Hegel’s Good Society 167

B. Free Market

In Hegel's good society, there is no need, as there was in Plato's Republic,

to force individuals to take jobs that they are best qualified to perform
(Plato 1979, 423 d). It is also not necessary to share wives and children so
as to assure a feeling of unity, nor is it necessary to prohibit private prop-
erty to make adherence to the common good possible (Id., 457 b–466 d).
Based on a reading of the British economists, Adam Smith and Sir
James Steuart, Hegel was able to invest the emerging free market with the
hope of enabling the good society to develop without an appeal to some of
the authoritarian or paternalistic methods thought necessary in Plato's Re-
public.169 This was all the more important as this intellectual appreciation
of the free market matches well with Hegel's own affirmation of the central
function of free work in human consciousness.
Within his architectonic, Hegel expects that the free market will be able
to deliver three desirable goals. The first goal is that of providing, in a
guaranteed way, the goods and services needed for the members of society.
The second goal is that of integrating the individual in a preliminary way
into his or her community. The third goal is that the free market will allow
people to reconcile themselves with nature and, in the process, allow them
to develop self-esteem.
Hegel has a typical philosophic way of assigning these different func-
tions to the free market.170 Indeed, he calls the free market one of the three
ethical institutions. The other two are the family and the state. These three
institutions are ethical because they embody and give institutional form to
the moral principle. Typical for the moral principle is the fact that the in-
dividual has the right and the duty to do the good as he or she sees it. Mo-
rality is thus, first, the free choice or free commitment to something; and
second, the choice of and the commitment to a good.
These two aspects of morality are more easily perceived in the family
and in the state than in the economic order. Hegel describes the moral as-
pect of the family as follows:

Hence in a family, one's frame of mind is to have self-consciousness of

one's individuality within this unity as the absolute essence of oneself, with
the result that one is in it not as an independent person but as a member.
(PR, # 158)

169
For two book-length treatments of Hegel’s dependence upon the British (Scottish)
economists, Adam Smith and James Steuart, see Chamley 1963 and Waszek 1988.
170
The relation between the free market and Hegel’s view of freedom and thus of the
moral-ethical aspects of the free market were systematically explored in Chapters 3 and 4.
168 7. Structural Deficiencies in the American System

He summarizes the two elements as follows:

[the essence of marriage consists] in the free consent of the persons, espe-
cially in their consent to make themselves one person, to renounce their
natural and individual personality to this unity of one with the other. (Ibid.,
# 162)

The moral aspect in the family requires a free consent and a commit-
ment to a goal, a common good, the unity of two wills.
Similarly, Hegel sees a moral dimension in the state: free consent to the
common good, which in this case is the discussion, selection, and en-
forcement of the rules by which the life of the community is to be gov-
erned.
As far as the economic order is concerned, there is a problem. It is clear
that one of the two moral components is present; there is free choice.
Adam Smith says it well when he writes, “Every [one], as long as he [or
she] does not violate the laws of justice, is left perfectly free to pursue
[their] industry and capital into competition with those of any other [per-
son], or order of [persons]”(Smith, 423). We are not amazed therefore that
Hegel characterizes the free market as “the system of atomistic by which
the substance is reduced to a general system of adjustments to connect self-
subsisting existences and their particular interests” (PR, # 523).
It is difficult to see how the other component, the commitment to a
good, is realized in the economic order. Again, Adam Smith is worth
quoting: Every individual “generally, indeed, neither intends to promote
the public interest, nor knows how much he is promoting it...he intends
only his own aim” (Smith, 423). Hegel, too, understands this aspect of the
free market; he even saw its politically disastrous consequences. He
writes:

Particularity by itself, given free rein in every direction to satisfy its needs,
accidental caprices, and subjective desires, destroys itself and its substantive
concept in this process of gratification. (PR, # 185)

Hegel therefore confirms that one can look upon the free market as the
“disappearance of ethical life” (Ibid., # 181). In less philosophical terms he
writes: “Civil society [the economic order] affords a spectacle of extrava-
gance and want as well as of the physical and ethical degeneration com-
mon to them both.”171

171
Ibid., # 185; See also Briefs 1983. The basic thesis of this article is that there is mar-
ginal pressure to undermine legal and moral norms in the capitalist system, because eco-
nomic doctrine expects too much of competition as the regulator of self-interest.
 III. Freedom. Hegel’s Good Society 169

However, these negative remarks are not Hegel's final judgment con-
cerning the ethical relevance of the free market. Hegel, informed by the
British economists, accepts the proposition that there is an invisible hand at
work which in a quasi-deterministic way guarantees a common good. That
good is the fact that the free market provides more and better products and
services (as they are desired by the consumers) than any other system. The
argument advanced is that individuals need products and services in order
to satisfy their needs. The free market is a system that does not give any-
body a right to a share in the social product unless one has contributed to
that product. More technically, the free market guarantees that one gets a
claim to a share of the social product of goods and services, in direct pro-
portion to the marginal value of one's own product.
This means that if one does not, or cannot, produce something, or if one
produces something that nobody is asking for, then one does not receive a
claim to the goods and services available in society. The free market thus
becomes a system that automatically rewards or punishes individuals ac-
cording to whether they contribute to the useful products of society. The
free market thus has the power to reward or punish, and it does so auto-
matically. The domain in which the free market can reward or punish is a
domain to which no one can be indifferent. Indeed, in as much as human
beings are bodily subjects, they cannot afford not to be sensitive to what
the free market system can award or punish them with; if they do, they will
suffer bankruptcy or starvation. Individuals, in as much as they are tied to
the necessary requirements of their own existence, are forced to accept the
laws of the free market. It is in this specific sense that one can say that the
free market makes use of a threat or uses compulsion and thus that there is
determinism at work. The consequences of this mechanism are important.
It guarantees that even self-interest and selfishness can be mobilized for
productive purposes. It also guarantees that individuals will pay attention
to each other.
Let us elaborate upon these two points. The fact that the free market is
based upon self-interest has long been heralded. It is supposed to guaran-
tee a more productive society; it is also supposed to guarantee a more
steady supply of goods (Smith, 14).
The fact that it forces individuals to pay attention to others is a rather
important anthropological feature. Indeed, a long tradition of philosophy
and of Christian thought has affirmed that human beings are social beings.
This social dimension has frustrating aspects,172 and it is therefore not sur-
prising that individuals prefer to will their independence rather than their
social dependence. The free market, thereby, helps individuals to accept

172
Sartre said: “Hell is just--other people” (Sartre 1958, 52).
170 7. Structural Deficiencies in the American System

what they might not be willing or able to accept freely; that is, the fact that
they have a social destiny.
This brings us naturally to the second goal assigned by Hegel to the free
market. The free market is supposed to provide preliminary integration of
the individual into society. This integration is then completed in the state.
However, Hegel stresses the idea that the integration of the individual into
the state does not have to start from scratch. The good citizen is not a
magically transformed chameleon of the self-interested “homo
economicus.” Even though Hegel points out that the free market educates
the “homo economicus” towards a social being or towards an individual
integrated in social groups, and even though Hegel points out that the state
must promote the legitimate self-interest of the citizen, he nevertheless
maintains that there is a radical difference between the “homo
economicus” and the citizen. Indeed, the emotional attachment of the citi-
zen to the state (patriotism) means that the individual is willing and able to
recognize that the value of his life lies in something other than himself. He
is therefore, in principle, willing to freely accept the subordination of his
self-interest to the interest of the community as it is organized in the state.
His willingness to pay his fair share of taxes and his willingness to serve in
a just war are the two instances in which the citizen transcends the “homo
economicus.”
We have already seen that the free market entices and forces the indi-
vidual to pay attention to the needs of others. The free market, thus, auto-
matically makes the “homo economicus” a socially oriented individual.
Clearly the “homo economicus” remains self-interested even in the atten-
tion paid to the neighbor's needs. The “homo economicus” does not be-
come altruistic. She does not transcend the self. She remains selfish, but
not solipsistic. Hegel sees further integration: the integration in a class
(PR, # 207), or in an association (Ibid., # 251), or in a corporation, in the
process of integrating oneself into the economic order. In order to become
a member of the free market, one has to develop a skill; one has to choose
one of the many professions available. One, therefore, automatically be-
comes a member of a class; one can even decide to become a member of a
professional association. In becoming a member of a professional class,
one also becomes somebody for the economic order and one is recognized
by others and in one's own eyes as being somebody worthwhile (Ibid., ##
252–256). Furthermore, the rewards specific to that profession specify the
kinds of wishes that are realistically satisfiable. Where desires are infinite,
one's acceptance of a specific profession provides the individual with a
bundle of attainable goods that others accept as satisfactory for a decent
human existence. Inserting oneself into a particular economic class thus
provides help in accepting one's finitude.
 III. Freedom. Hegel’s Good Society 171

The insertion into a corporation has the further advantage that a person
is partially liberated from the threat which forced him to enter in the eco-
nomic order in the first place. Indeed, the corporation provides a stable
basis for the livelihood of the family. It furthermore allows the sublima-
tion of the self-interest motive, that is, the motive which is minimally re-
quired to set the free market in motion. The insertion into a corporation al-
lows the individual to be assured of his self-interest while being free to
work for the interests of the corporation. The insertion into a corporation
thus allows the person to transcend individual self-interest and become
concerned about a common good: the good of the corporation.173
The third goal assigned by Hegel to the free market is that it can allow
for a reconciliation of the person with nature and with his or her own bod-
ily aspect. Avineri is right in quoting Marx when he says, “He (Hegel)
conceives labor as the essence, the self-confirming essence” of a human
being (Avineri 1964, 90, n. 25). Hegel did, indeed, develop labor as the
solution to the problem of self-consciousness which had the paradoxical
task of affirming that it is not something objective, whereas it needs objec-
tivity. Hegel develops the solution in his famous analysis of the master-
slave dialectic. However, Hegel also argues that labor does not come
about automatically. Because labor requires restraint of desire, it comes
about only under a double threat: the fear of death which teaches con-
sciousness the value of life and the threat of the master which imposes on
the subordinate (the slave) the burden of service and labor. We are ulti-
mately called upon to discover that work is our essence (Hegel 1967 c,
118–119). Thus, we reconcile ourselves with a situation in life that has its
negative aspects. The free market economy sanctions this insight by giv-
ing a moral significance to the ability of earning a living and by interpret-
ing its failure in a moral sense as well, the easiest one being that poverty is
explained by laziness.
Hegel nevertheless goes beyond this optimistic view of the free market.
He notices that there are a number of problems in the free market system
for which he hoped that the state would provide adequate help. Hegel also
notices a number of problems for which he saw no solution.
For the problems for which Hegel finds that there were solutions, he
enumerates the administration of justice and what is called, in modern ter-
minology, public goods or externalities.
a) The administration of justice is connected with the idea of the protec-
tion of property. It not only requires a legal system but also police as pro-
tection against thieves and an army as protection against foreign occupa-
tion. Hegel, however, does not reduce the problem of poverty to a
173
Ibid., # 251. This aspect is stressed very much in “Theology of the Corporation” (Novak
1981, 210–211).
172 7. Structural Deficiencies in the American System

utilitarian argument or a formal entitlement theory. For Hegel, “property

is the first embodiment of freedom and so is in itself a substantive end”
(PR, # 45).
As property has this intrinsic connection with freedom, Hegel sees cor-
rectly that the task of the state cannot be restricted to the protection of ex-
isting property rights. The administration of justice needs to be combined
with an attempt to remedy the problem of excessive poverty, i.e. the lack
of property by some.174
b) The problem of public goods is that of goods which might benefit a
large number of people without the producer being able to receive payment
for his or her services. One special form of public goods is that of gov-
ernment regulation of goods offered to the public.175
Hegel sees three interconnected problems for which did not see a solu-
tion. They are: 1) The fact that the problem of luxury might result in
cynicism; 2) The fact that the division of labor leads to meaningless jobs
or, more generally, that work is not work for oneself, but for the anony-
mous market; 3) The fact that poverty is widespread and results from acci-
dental phenomena outside the control of individuals. Hegel suggests that it
might even be system-generated.
Hegel sees that the mobilization of productive forces in the free market
is liberating. In previous times a family might have been concerned about
whether or not its budget would permit it to buy enough potatoes—Ireland
in the mid-nineteenth century – or enough bread – France in the eighteenth
century. If the problem of a contemporary family is whether it can afford
to go twice or only once a week to a restaurant, that is a liberation from the
previous situation in which the demands of natural needs were more press-
ing. However, the new possibilities create their own enslavement. One
feels the need to emulate – keep up with the Jones – and to assert oneself
in some distinctive way. Thus, the road is open for infinite refinement of
one's desires. These refinements, though, require the possession of re-
sources; the needy, however, do not have them at their disposal. On the
contrary, they remain threatened by the pressing demands of their natural
needs. Cultural and natural enslavement thus coexist. Referring to the
cynical mode of life adopted by Diogenes, Hegel then argues that when
“luxury is at its height, distress and depravity are equally extreme, and in
such circumstances Cynicism is the outcome of opposition to refinement”
(PR, # 195 addition).

174
This argument was developed in more detail in chapter 4.
175
The problem of public goods is discussed in standard economic textbooks on “Public
Finance.” A survey essay of considerable depth is “The Theory of Public Goods” (Head
1974, 68–92). Hegel discusses public goods problems in his Philosophy of Right, ## 231–
236. In my view regulation of products is often a problem of (de)merit goods.
 III. Freedom. Hegel’s Good Society 173

A second permanent deficiency of the free market is that the division of

labor does not allow the free market to perform its educative function.
Work not only keeps a person busy, ideally, it also teaches one to master
the material with which one works. It invites one to cooperate with others.
It ends up helping one to acquire habitually executed skills recognized by
others as worthwhile (Ibid., # 197). The division of labor, though, “makes
work more and more mechanical” (Ibid., # 198). This in turn results in the
“distress of the class tied to work of that sort,” so much so that they will be
unable “to feel and enjoy the broader freedoms and especially the intellec-
tual benefits of civil society” (Ibid., # 243).
A third critique of the free market is the creation of poverty. Success or
failure in the free market depends not only upon skill and hard labor but
also upon luck. Thus, all kinds of contingencies play a role in the creation
of poverty. Hegel already points to the fact that the existence of a rabble
of paupers “greatly facilitates the concentration of disproportionate wealth
in a few hands” (Ibid., # 244).176 Furthermore, Hegel thought that unem-
ployment was the result of overproduction and he therefore believed that
the free market was inherently unable to eliminate poverty (Ibid., # 245).
Indeed, the poor can either be supported without being required to work
or the state can give them work and pay them accordingly. The latter
method Hegel believes to be self-defeating. Giving work to the unem-
ployed would add to the productive activities of society. The unemploy-
ment problem was created by overproduction. It is not rational to try to
solve the problem of overproduction by producing even more. The first
method of supporting the unemployed or the poor without them having to
work also produces serious problems, according to Hegel. First, it de-
prives the unemployed or the poor of the means to acquire self-esteem and
social respect which are the result of successfully earning a living. Sec-
ond, if the support for the poor is based on private charitable donations,
then the poor and the unemployed are never certain of what to expect.
This uncertainty can be removed if the state uses its power of taxation to
guarantee a steady stream of income to the poor and the unemployed.
However, this method violates a basic principle of the free market, where
one has a claim to the social product only if one contributes to that product.
Hegel thought that such a violation of the free market principle would lead
to resentment. The state still might get away with some form of welfare
program, but Hegel foresaw that resentment would limit its scope.
Hegel was the first great systematic philosopher to have understood the
contribution that a free market organization of the economic domain makes

176
In modern economic theory, the existence of a rabble of paupers could be conceptual-
ized by the existence of high level of unemployment. In turn this fact pushes down wages
and thus makes the use of capital more profitable.
174 7. Structural Deficiencies in the American System

to the good society. He argued though, that the centrifugal forces of the
free market and the inability of the free market to solve the problem of
poverty required the presence of a properly ordered political system in or-
der for the free market to make the proper contribution to the good society.
The American political system does not have the required political order,
as Hegel saw it, to guarantee the proper contribution of the free market.
Both Lowi and Briefs have taught us how the free market in fact has trans-
formed American capitalist society into an unjust society (Lowi) or a soci-
ety without proper concern for the common good (Briefs). This is exactly
the starting point for the Bishops' Pastoral on the American economy.

IV. The Bishop’s Pastoral: A Religiously Based Economic

Ethic

The Bishops' Pastoral letter starts a crucial moment of its document by

praising the American system. The praise is formulated in a way that
seems to approve of the American democratic capitalist arrangement of so-
ciety. The document can therefore be seen as basically being in agreement
with Hegel's view of the good society in the modern world. Thus the Pas-
toral letter states:177

When we consider the performance of the American economy and its suc-
cess in reflecting these basic economic rights, we see an encouraging record.
In its comparatively short history, the United States has made impressive
strides in the effort to provide material necessities, employment, health care,
education, and social securities for its people. It has done this within a po-
litical system based on the precious value of freedom. (# 81)

Still, the Pastoral letter does not refrain from pointing to some very serious
failures of the American economic system. Thus, in the same paragraph
we read:

While the United States can be rightfully proud of its achievements as a so-
ciety, we know full well that there have been failures, some of them massive
and ugly. Hunger persists in our country, as our Church-sponsored soup
kitchens testify. Far too many people are homeless and must seek refuge
from the cold in our church basements. As pastors we know the despair that

177
The references are to the First Draft of the Bishops’ Pastoral, “Catholic social Teaching
and the U.S. Economy.”
 IV. The Bishop’s Pastoral: A Religiously Based Economic Ethic 175

can devastate the individual families and whole communities when the
plague of unemployment strikes. Inadequate funding for education puts a
high mortgage on our economic future. Racial discrimination has devastat-
ing effects on the economic well-being of minorities. Inequality in em-
ployment opportunity, low wages for women and lack of sufficient child-
care services can undermine family life. The blighted and decaying envi-
ronment of some disadvantaged communities stands in stark contrast with
the natural and architectural beauty of others. Real space for leisure, con-
templation and prayer seem increasingly scarce in our driven society. (# 81)

The letter does not refrain from making a moral judgment about the factual
failures. Indeed, in # 100 it states: “We believe that the level of inequality
in income and wealth in our society and even more the inequality on the
world scale today must be judged morally unacceptable.” Or, “The fact
that so many people are poor in a nation as wealthy as ours is a social and
moral scandal that must not be ignored” (# 187); or finally, “In our judg-
ment, the distribution of income and wealth in the United States is so ineq-
uitable that it violates this minimum standard of distributive justice” (#
202).
Lowi, Briefs, Olson, and Hegel all saw the problem of injustice (poverty
in the midst of plenty) or collective inefficiency as arising from a society
built upon a one-sided concept of freedom: liberty.178 Lowi hoped for ju-
dicial democracy. Hegel hoped for institutional arrangements. Briefs in-
dicated a moral task. What does the Pastoral letter introduce as novel ele-
ments?
The Pastoral letter uses the institutional authority of a major religious
organization to introduce a religiously based ethic into the debate over the
outcomes of a democratically organized free market. That ethic draws on
two themes of the biblical vision of the human person. First, a human be-
ing created in the image and likeness of God has transcendent worth: there
is something sacred about every person (## 23, 24). Second, the dignity of
the human person is realized in community with others (## 23, 24). Based
on that union, the letter demands from the economy not just productive ef-
ficiency, it demands that the economy “permit all persons that measure of
active social and economic participation which befits their common mem-
bership in the human community” (# 73).
The letter does not consider this second goal as secondary in the sense
that it is justifiable or desirable only if it helps the first goal of economic
efficiency. The letter does not even consider the economic cost or eco-
nomic benefit of imposing the participatory character on the economy. In-

178
Olson calls it a view of the person taking only rational self-interest into account (1965,
64–65, 159–162).
176 7. Structural Deficiencies in the American System

stead it systematically spells out the implications of the communitarian

demand. Thus, when enumerating the threefold moral significance of the
economy, the letter mentions explicitly, “work should enable everyone to
make a contribution to the human community to the extent each is able” (#
76). Or as reformulated in # 77: “it [the economy] should make possible
the enhancement of unity and solidarity within the family, the nation and
the world community.”
This religiously-based economic ethic is then reformulated in the lan-
guage of rights and in terms of a theory of justice. In terms of rights, three
groups are enumerated. First, there are the rights to “food, clothing, shel-
ter, rest, medical care” (# 79). Second, there are the rights “to free initia-
tive in the economic field and the right to work” (# 79). Third, there are
broader “rights which set moral constraints on the institutional ordering of
the economy, such as the rights of labor unions and the rights of owner-
ship” (# 79). The language of rights allows the letter to stress, in a lan-
guage that is culturally understood, the demand that the economy must in
its outcomes provide for the needs of all. The letter emphasizes this rhet-
orically when it states in italics some ten paragraphs later: “all persons
really do have rights in the economic sphere” (# 79).
The language of justice is used to focus more specifically on the com-
munity building request issuing from a religiously based economic ethic.
The letter presents several formulations, such as: “justice demands the es-
tablishment of minimum levels of participation by all persons in the life of
the human community” (# 92); or, “justice demands that social institutions
be ordered in a way that guarantees all persons the ability to participate ac-
tively in the economic, political and cultural life of the community” (# 94);
or, “justice is not simply a matter of seeing to it that peoples’ private needs
are fulfilled. It is also matter of enabling them to be active and produc-
tive” (# 95).
The letter fully recognizes the difficulties in implementing the two ma-
jor goals of fulfilling the basic needs of all (including those of the poor)
and of increasing the participation of all in the economic process. Thus, it
acknowledges that the American ethos does not give the same privileged
position to economic rights as it gives to civil and political rights. In an
eloquent paragraph we find the following statement:

First, the philosophical tradition which helped form our national ethos gives
pride of place to the protection of civil and political rights such as freedom
of religion, speech and assembly. Economic rights (for example, adequate
nutrition, housing and work), however, do not hold this privileged position
in the cultural and legal tradition of our nation. (# 83)
 IV. The Bishop’s Pastoral: A Religiously Based Economic Ethic 177

Furthermore, the letter acknowledges that we do not know how to im-

plement economic rights. Again, this is in sharp contrast to our institu-
tional expertise in ensuring civil rights (# 84).
Finally, the letter sees difficulties for the implementation of its goals at
the level of motivation. Thus, it states:

There are forms of individual and group selfishness present in the nation
that undermine social solidarity and efforts to protect the economic rights of
all” or, “the sins of indifference and greed continue to block efforts to secure
the minimum economic rights of all persons. This selfishness not only dis-
torts the hearts of individuals, it has also become embedded in certain of the
economic institutions, and cultured presuppositions of our society” (# 85).

The letter, therefore, almost naturally asks for “the formation of a new cul-
tural consensus that all persons really do have rights in the economic
sphere” (# 86). What this new cultural consensus entails is spelled out in
the application program required by justice. It entails seeing that the “ful-
fillment of the basic needs of the poor is of the highest priority” (# 103),
that the “increased economic participation for the marginalized takes prior-
ity over the preservation of privileged concentrations of power, wealth and
income”(# 104) and that “meeting human needs and increasing participa-
tion should be priority targets in the investment of wealth, talent and hu-
man energy”(# 105).
In the part on “The Responsibilities and Rights of Diverse Economic
Agents and Institutions,” the letter introduces anthropological and politico-
philosophical concepts to strengthen the weight of its demands made on
the economy. Thus, the letter introduces, first, the anthropological concept
of work as self-realization in the triple sense of fulfilling one's vocation as
an individual, as a member of the human community and as a religious
person, (# 109) or the idea that freedom requires the “capability to resist
the pressures constantly to want to consume more” (# 141).
The second anthropological concept introduces the idea that private
ownership must be subordinated to the “principles of stewardship and the
common use of the goods of creation” (# 121).
The letter also introduces two principles of political philosophy. The
first is that of subsidiarity. “This principle states that government should
undertake only those initiatives necessary for protecting basic justice
which exceeds the capacity of individuals or private groups acting inde-
pendently” (# 127). The second principle is the principle of supra-national
duty to the whole of the human family, even in the absence of international
political authority (# 137).
But clearly, several of these principles are contrary to those that are op-
erative in democratic capitalism. Indeed, at the anthropological level,
178 7. Structural Deficiencies in the American System

capitalism has been heralded as the social arrangement that would tolerate,
or even legitimize “interests,” in order to extinguish some unacceptable
vices.179 However, arguing, that one must restrain the desire to consume
or that one must acknowledge higher principles than private ownership, is
situating oneself outside capitalism – as it was originally imagined and as
it still legitimates itself at the popular imaginary level.
At the politico-philosophical level, matters might even be worse. De-
mocratic capitalism clearly has an international dimension. But, the de-
mocratic aspect is tied to the nation state.
As Lowi and Briefs have shown, the democratic political order in the
late capitalist phase is not independent of the interest groups that have
emerged in the nation state. These interest groups actively interfere with
systematic implementation of the two political principles appealed to by
the Bishops' letter. Indeed, by their very nature, interest groups try to use
the state to further their interests, and might therefore oppose international
humanitarian objectives if these are perceived to be in conflict with the
group’s own interests. Even worse, in domestic policy, the refusal of in-
terest groups to accept responsibility undermines the possible application
of the subsidiarity principle, as Briefs argues, because the subsidiarity
principle can only work if lower forms of organization are able and willing
to take responsibility.
The Bishops' letter can thus be seen as an attempt to criticize
some outcomes of American democratic capitalism on the basis of a
religiously grounded economic ethic. This ethic goes against the
implicit and explicit legitimation of self-interest in democratic capi-
talism, but it is a powerful challenge.

Conclusion

Studying the ideas of Lowi, Briefs, Olson, and Hegel allows us to reject
some false opinions about American capitalism. Not all is well in a society
that has embraced the principle of a constitutional free market. Both Lowi
and Briefs argued that the constitutional free market society in the latter
half of the twentieth century and American capitalism in particular, have
become unjust. Olson argued that interest groups burden democracies with

179
See Hirschman 1982, esp. “The Passions and the Interests” part I, “How the Interests
were Called Upon to Counteract the Passions.”
 Conclusion 179

economic inefficiencies. In simple terms: democratic capitalism is not the

realization of the good society. There is nothing in Hegel to contradict this
conclusion. In fact there are several warnings in Hegel which point to the
possibility that any constitutional free market society might degenerate.180
It is also possible to reject the opinion that the source of evil in late
capitalistic societies is to be attributed to the technical organization of the
economic order, (i.e. the free market mechanism). Indeed, Hegel pre-
sented convincing arguments to show that a good society must include the
possibility for the exercise of the arbitrary will of individuals in important
segments of our lives. The free market mechanism does present such an
opportunity. Furthermore, of Lowi, Briefs, or Olson, none attributed the
source of evil to the free market mechanism itself. Rather, they attributed
it to the ethos pattern that has developed, and which permits or even en-
courages, the quasi-unrestricted pursuit of group self-interest.
Now that two false opinions are rejected, we are left with the question
of whether we can come up with further insights. I believe we can stress at
least two of them.
First, even if we grant that Hegel was far-sighted in his analysis of the
political requirements of a good society within the context of the free mar-
ket, we must deny that a hereditary monarch or an upper house whose
members are composed of a landed aristocracy, is a valid correction to the
contemporary situation. The popular sovereignty idea would simply not
allow such a change in the political system. Furthermore, as Marx was the
first to demonstrate (O’Malley 1970, 99–101), the purpose of introducing
the free market as a necessary element of the good society was to promote
freedom. Now, the landed aristocracy, in Hegel's view, would be deprived
of freedom in the choice of profession. The oldest son, through primogeni-
ture would be tied to the land of the family and, because of that, have a
seat in the upper house. Such an arrangement would work against the
principle of freedom which Hegel thought the free market helped to realize
in the modern state.
Second, all three authors express the need for the explicit concern for
moral values if the free market society is going to contribute to the good
society. Hegel thinks that society would keep that moral concern because
of the influence of the monarch and well-trained civil servants. Lowi be-
lieves that judicial democracy will force people to consider the moral qual-
ity of the rules that would be adopted. Briefs makes an explicit argument
for the re-affirmation of values and ethics within a free-market society.
Olson hopes that consolidation of interest groups will force those large in-
terest groups to forgo free riding because they will see that the harm they
180
PR, ## 243–245. The warnings concern the consequences for large masses of people of
both poverty and “mechanical” work.
180 7. Structural Deficiencies in the American System

might do to society, for the purpose of promoting narrow group interests,

will also perceptibly harm their own members – they have become so large
that their behavior has a clearly visible impact on the well-being of the
whole society.
There is a well-known theorem in economics which argues that in a
competitive market everybody is paid his (marginal) contribution to the
social product (Ferguson 1969, 377–80). Many accept such a distribution
as morally correct. Our second conclusion rejects the idea that the free
market distribution of goods and services (free market which is not always
competitive) is a proper substitute for moral reflection upon the economic
reality.
The Bishops' Pastoral is precisely an attempt to present an ethical reflec-
tion upon the economy. It is an ethical reflection based upon a religious
view of the human person and society. This view is quite different from
the view of the human person legitimated within democratic capitalism –
i.e. self-interest. Indeed, the religiously based economic ethic of the Pas-
toral demands restraints of consumer wishes, proposes restrictions on the
absolute right of private ownership, and requires that economic activity
promote the communitarian spirit. It should take some time before one can
see if the religiously based economic ethic appeals to forces that can
change society and how much change it can realize. But clearly, the Pas-
toral letter draws attention to a problem already delineated by academic
thinkers such as Lowi, Briefs, Olson, and Hegel.
8. Unjust Redistribution in the American System

Abstract

In this chapter, I will argue that children are a special subgroup of society
in that they represent an opportunity for gain for the whole society. Self-
interested individuals acting atomistically are not motivated to contribute
optimally, if they contribute at all, to the realization of this social opportu-
nity. Societal opportunities can be approached as public goods, giving the
government a positive role. However, I will argue that the financing of a
public good by means of general taxation violates the public good argu-
ment. Such a financing method requires, in addition to the public goods
argument, a moral or merit good argument. I will endeavor to provide
such an argument. I will also explicitly argue that the current method of
providing child support in the United States is defective, as it is neither ef-
ficient nor just.

I. An Opportunity for Collective Gains

A. An Argument Based on Expected Dollar Gains

On average, children have a potentially greater future ahead than those in

other age groups. In that future they can either contribute to the productiv-
ity of society or become a financial burden, as in the case of criminals.
Similarly, they may remain reasonably healthy or they might need expen-
sive health services. My argument will concentrate on future productivity
and future health requirements. Both present opportunities for collective
gains that are more pronounced than for any other age group in society be-
182 8. Unjust Redistribution in the American System

cause current investment in children can expect a greater return than in-
vestment in any other age group.181

a. Potential Collective Gains from Investing in Children in Order to

Promote Future Productivity

Most participants in the work force have both a luxury and a problem. The
luxury is that they earn more than they consume: they normally have a
surplus they can save. They also have a problem: they know that later, in
old age, they will consume more than they can earn. Most participants in
the work force thus have the problem of conserving current earnings for
later consumption.
No one can buy the apples now that they will eat when they are old and
retired. What one can do is save buying power, in the form of durable
goods, precious metals or money, among others. Saving buying power in
the form of money is more efficient for society than saving in other forms,
because the use of money incurs fewer transaction costs. I will therefore
build my argument upon the use of money as buying power for the future.
Let us assume for simplicity's sake an inflation-free, closed economy
where the percentage of growth translates frictionless into the same per-
centage of real interest. An inflation-free society gives its population the
opportunity to save its purchasing power risk-free over time. But what
will that purchasing power buy, let us say, 36 years from now?
What that money will buy depends upon the productivity of society in
the intervening 36 years. If there is no productivity increase during the 36
years, then $1.00 which could buy 1 pound of apples in 1995 will still buy
1 pound of apples 36 years later.
If we accept a 1 percent productivity increase per year for each of the 36
years then the national product will have increased by almost fifty percent
in that time.182 With no inflation the saved purchasing power of our $1.00
would now be able to buy 1.43 pound of apples. Society would be able to
give 1 percent interest per year while holding inflation at 0 percent.
If society experiences a productivity increase of 2 percent per year, then
the purchasing power would more than double after 36 years.183 One dollar
saved would, upon retirement, be able to buy about 2 pounds of apples.

181
One exception might be pregnant mothers or mothers of very young children. However,
the opportunity for collective gain by means of subsidizing these mothers is related in an
essential way to the future well-being of their children. I take up this idea in section I.1.b of
this chapter.
182
$1.00 becomes $1.43 by compounding yearly at an interest rate of 1 percent.
183
$1.00 becomes $2.04 by compounding yearly at an interest rate of 2 percent.
 I. An Opportunity for Collective Gains 183

All persons facing retirement thus have a personal interest in seeing that
the productivity of their own society increases. An important factor re-
sponsible for increases in productivity is the skill of the labor force.
Subsidies for children that are used for increasing the education and the
training of the next generation in the work force contribute to an increase
in the productivity of the future labor force and, thus, also increase the fu-
ture purchasing power of every saved dollar.
In other words, subsidies for children, spent in a way to increase future
productivity, provide a benefit to every consumer in society who saves
purchasing power over time. Thus, every individual who will consume in
the future on the basis of past savings will benefit from subsidies to chil-
dren that increase future productivity. Subtracting the subsidies from the
total discounted gains of future productivity increases gives us a measure
of the net potential societal benefit that results from the undertaking of
subsidies to children.184
Let us assume, as is often done (e.g., by neo-classical economic theory),
that all individuals act atomistically and out of self-interest. Under those
assumptions, each individual, by his own payment, can contribute only in-
finitesimally to the improved societal productivity. Therefore, it would be
irrational for any individual to personally subsidize children in the hope of
benefiting from the future societal productivity increase secured by that
personal investment. Indeed, the increased purchasing power resulting
from one individual's investment in children would be so infinitesimally
small that it would not repay the cost of that investment. Nevertheless,
there is a societal opportunity for gain. There is a potential societal gain to
be made, but no atomistic individual, acting alone, could possibly be moti-
vated by self-interest to contribute even minimally to the cost of realizing
this potential gain. Thus, an economy relying on atomistic and self-
interested individuals will forgo the potential societal benefit of future pro-
ductivity created by subsidizing children.

b. Potential Collective Gains from Investing in Children in Order to

Save in Future Health Insurance Costs

The United States has a health insurance system financed directly and indi-
rectly by the contributions of individuals. If the cost of the health care sys-
tem goes up, individuals end up paying, on the average, more for health in-
surance. It is true that the increased costs are not spread equally and are

184
If the net societal benefit from increased productivity derived from subsidies to children
is less than the subsidy itself then subsidy to children is not economically justified on pro-
ductivity grounds.
184 8. Unjust Redistribution in the American System

sometimes hidden.185 However, I want to make my argument on the basis

of the average increase. Thus, if total health care costs increase, and we
assume that co-payments are insignificant or are a fixed percentage of the
total health care costs, then, by definition, an increase in health care costs
leads to an increase in average health insurance costs. Conversely, if
health care costs decline, the average health insurance premium will also
decline. It is reasonable to assume that investment in basic prenatal and
basic early infant care186 will decrease future health care costs, and that
such care will decrease those costs more than would a similar dollar
amount of health care investment in another age group. The sum of dis-
counted future savings in all individual health insurance premiums minus
the cost of additional health care would give a measure of the net total so-
cietal benefit of additional spending on prenatal and early basic health
care.187
As with future productivity, I wish to emphasize that the benefits accrue
to individuals, not to a mythical entity called society. Again, no atomistic
individual is rationally motivated to pay even minimally for increased cur-
rent spending on health care for children because individual spending has
such an infinitesimal consequence for future savings in health insurance
costs that the benefit of that spending to the individual is much smaller
(virtually infinitesimal) than the cost. And thus, as with the case of future
productivity, there is a potential societal gain, but no atomistic individual
is rationally motivated to buy the service that would realize that gain.188

B. An Argument Built Upon the Assumption of

Intersubjective Utility Interdependence

Let me now turn to a softer argument. In recent decades authors have

enlarged the concept of self-interest to include compassion and altruism as
realistic elements of one's preference (Hochman & Rodgers 1969; Brennan
1974/75; Brennan & Walsh 1977; Sen 1977).189 Human beings are not just
interested in their own consumption of private goods – a sandwich – or of

185
Unions may forgo wage increases in order to have the employers pay more for health
benefits of employees, for example.
186
Care for helping premature babies to survive is a more complicated matter.
187
If the cost of additional health care for children were greater than the sum of discounted
future savings in all individual health insurance premiums then subsidies for children based
on potential savings in health costs would be economically unjustified.
188
For the development of the full argument for this point see the last paragraph of section
I.1.a. of this chapter and chapter 6.
189
Sen argues that sympathy can be included in the concept of self-interest, but not com-
mitment.
 I. An Opportunity for Collective Gains 185

public goods – a bridge – but are interested in other people's consumption

as well. Many feel pain when seeing or hearing about hungry and mal-
nourished children. Let us concentrate on the actual number of hungry and
malnourished children rather than on those that one happens to see oneself.
By assumption, compassionate people with income are supposed to have a
willingness to pay to satisfy their compassion or to remove their pain over
the deprivation of children. Atomistic individuals, taking into account
their compassion but acting to maximize their self-satisfaction, must com-
pare the benefit from any spending out of compassion with other forms of
spending such as buying private consumption goods, for example, more ice
cream. Again, it should be noted that the result of the investment in de-
prived children that arises from one individual's willingness to pay for
compassion's sake is so infinitesimal that, for the most part, it would not be
worth it for any individual, acting alone, to pay out of compassion to di-
minish the hunger and malnourishment of children in the whole society.
Still, acting together, individuals might consider that the personal satisfac-
tion they would each derive from an overall reduction in hunger and mal-
nourishment achieved by the contributions made by all individuals jointly
is worth more than the cost that their own share would be in such a joint
venture. It remains true, however, that individuals acting alone would not
have any interest in paying for the reduction in hunger. There is a possible
gain, but no individual alone is motivated, under neo-classical assump-
tions, to provide the money to materialize that gain (Brennan & Lomasky
1983, 198).190 Thus, there is potential gain, but it will not be realized un-
der neo-classical assumptions.
This argument based on compassion is a softer argument than the argu-
ment based on increased productivity because the argument from compas-
sion assumes a certain willingness in the population to translate compas-
sion into charitable giving. The argument based on increased productivity
does not need to assume such a willingness, for it rests on already demon-
strated dollar returns for gift dollars.

190
“[H]ence all members of the paying group may vote for a governmental transfer pro-
gram even though none would actually give one hundred dollars away unilaterally.”
186 8. Unjust Redistribution in the American System

II. The Opportunity for Collective Gain is a Public Good

The most solid economic argument for a governmental role based on the
motivation of self-interest is the public good argument. Let me summarize
the argument already presented earlier in the book.191 The public good ar-
gument is best formulated by means of the ideal concept of a pure public
good. That concept is defined by the two characteristics of non-rivalness
in consumption and the non-exclusion possibility. Non-rivalness in con-
sumption refers to a good which, if provided by one person, can be en-
joyed by all without the first person encountering any decrease in his en-
joyment. By non-exclusion possibility, one means that the paying
consumer is unable to withhold enjoyment of the good or the service from
the other consumers even if they do not pay. The ideal, and thus unrealis-
tic, character of the concept is, among other things, connected with the as-
sumption that the provision of the good can be, first, enjoyed by all and,
further, enjoyed by all without the first person losing any enjoyment. The
theory, therefore, assumes non-crowdedness. Thus, busy bridges and
roads can be given as examples of public goods, but they are not examples
of pure public goods. An example that approaches the status of a pure
public good is the provision of standards for weights and measures by the
Bureau of Standards (now called the National Institute of Standards and
Technology – NIST).
The concept of public good creates a problem for the economic theory
of the free market. The problem arises because the economic theory of the
free market assumes that economic decisions are made on a cost/benefit-
calculus basis by individual actors. In the case of a public good, the bene-
fits accrue to many individuals while the cost of providing the good falls
upon the one or few individual decision-makers who decide to buy it. As-
suming that the decision-maker(s) follows his self-interest, he will only
consider his own benefit from this public good and not the benefit to all the
other consumers. Let us call Bai the benefit of good a to consumer i. For
simplicity's sake let us assume that all consumers are identical in their pur-
chasing power and taste. Society (S) can be represented by S=Ni where N
is the number of consumers in that society. The benefit of good a to soci-
ety can then be represented by ™Bai. If an individual i is deciding strictly
atomistically then good a will not be bought if its total purchasing cost ex-
ceeds Bai, expressed in monetary terms. If, however, the total cost is less
than ™Bai then society does not realize an opportunity for gains in total
benefits, expressed as the difference between the cost of the good (which is

191
See chapter 6 of this book.
 II. The Opportunity for Collective Gain is a Public Good 187

too high for any individual to buy alone) and the summation of individual
benefits over the set of all individuals. This opportunity loss will occur for
every good a, b, c…where the benefit to the individual is less than the
cost, but where ™Bi is larger than the cost.
What are some examples of goods having the above-described charac-
teristic? There are many. Let me give some different types: national de-
fense, provided that benefits include also losses with a negative sign; a
light in an alley; a road; an airport; the Food and Drug Administration; a
school system; police protection.
Libertarians argue that the role of the government should be restricted to
what is normally called the minimal state: defense and police protection. In
Anarchy, State, and Utopia Robert Nozick sums up his position by writing:

We argued in Part I that the minimal state is morally legitimate; in Part II

we argued that no more extensive state could be morally justified, that any
more extensive state would (will) violate the rights of individuals. (Nozick
1974, 333)

However, if the above argument is correct, Nozick's theory prevents the

government from helping the community realize an opportunity that at-
omistically self-interested individuals in the free market are unable to real-
ize.
How can the opportunity gain for society present in some public goods
be realized? Although several philosophers have written about the prob-
lem of public goods (De Jasay 1989; Schmidtz 1991), I find it useful to re-
turn to two economists, Samuelson and Olson, who provide two different
approaches to the issue (Olson 1968, 1–3, 33–36; Samuelson 1954, 1955,
1958). Olson asks the question whether or not one can envision voluntary
approaches that would go beyond atomistic strategies. He suggests that
coming together or forming groups is the answer (Olson 1968, 5–52). The
neighbors in an alley can come together and undertake a joint action.
Workers can form a union and demand better and safer working condi-
tions. Olson argues that the bigger the group the more numerous the diffi-
culties that have to be overcome for joint action to succeed (Ibid., 132-35).
Olson even argues that many very large groups in contemporary society
are likely to fail in creating joint action (Ibid., 165–67). Families with
children constitute a large group of people. These families will very likely
fail to voluntarily join together in order to form a group. Let us therefore
look to the Samuelson approach.
188 8. Unjust Redistribution in the American System

Samuelson sees very clearly the opportunity possibilities connected with

public goods. He proposes a two stage plan of action.192 In each stage the
government plays a role. Some political theories might accept one role
and reject the other. The two stages of the analysis giving the government
different roles should therefore be clearly differentiated.
The first stage of the analysis consists of the government collecting data
for determining the presence of an opportunity gain. The government must
ask every consumer how much he or she would be willing to pay for a par-
ticular public good. The declared willingness of all consumers should then
be added up and this sum should be compared with the cost of providing
the good as determined by the lowest bid. If the cost is lower than the sum
of what individuals declared they were willing to pay, then the government
has evidence of the presence of an opportunity for collective gain. The
collective gain can be made evident to the atomistic consumers. Indeed,
the government, in such cases, should be able to provide the public good at
or below the price that each consumer is willing to pay. The concept of
collective gain with reference to the concept of the public good is not a
gain to a mythical entity called the collectivity. Rather, the collective gain
is nothing but the sum of the surpluses experienced by each consumer
separately when they subtract their share of the cost from their own per-
sonally experienced benefit of the good. Thus, in this first part of the
analysis, Samuelson addresses solely the non-rivalry in consumption. He
does not explicitly address the non-exclusion possibility.
In the first part of this chapter, I presented three arguments demonstrat-
ing the presence of an opportunity for collective gain by subsidizing chil-
dren: future increased productivity benefiting every citizen who uses sav-
ings to finance consumption; diminished future health care costs benefiting
all who will pay insurance premiums that reflect, however unevenly, ex-
pected costs; and, finally, increased satisfaction of one's sense of compas-
sion from the decrease in hunger and malnourishment of children.
Samuelson's theory of the pure public good is a theory designed to deal
with unrealized opportunities for collective gain in public goods. The gov-
ernment should seize the initiative: it should realize an opportunity for col-
lective gain and buy the services – in this case, the subsidizing of children.
The second stage of Samuelson's analysis consists of reflecting upon the
implementation (and financing) of a program to realize the opportunity for
gains with public goods. In this stage, Samuelson addresses the non-
exclusion possibility characteristic of public goods. The first stage of the
analysis gives us a list of public goods which possess opportunity gains. In

192
“Efficient, inefficient, and socially optimal configurations can be theoretically de-
fined...it will pay for each rational man to dissemble, trying to mask his preference for the
public goods” (Samuelson 1958, 334).
 II. The Opportunity for Collective Gain is a Public Good 189

order to realize these opportunity gains, the government needs to address

the fact that individuals are not, by themselves, motivated to buy the good.
Samuelson therefore proposes that the government use its taxation power
to force people to pay according to the self-declared benefits they receive
from the good. .But under such an arrangement, consumers are motivated
by their self-interest to give false declarations to the government about
their willingness to pay (Ibid.). Even if the government could devise
clever interviewing strategies (Tideman & Tullock 1976),193 it would re-
main the case that individual consumers are motivated to deceive the gov-
ernment about their true interest in the public good, because the govern-
ment must rely on its power of taxation to deal with the non-exclusion
possibility of public goods. The interests of the individual citizen and the
interests of the government trying to realize an opportunity for joint gains
do not coincide. This gives libertarians an opening to oppose government
provision of public goods. But, successfully opposing government help in
providing public goods leads to a collective opportunity loss.
Currently the government pays for its subsidies for children by using
general revenue. The government does not ask its citizens to pay accord-
ing to their declared willingness because of expected benefits. The gov-
ernment thus demands that some citizens pay more for the collective bene-
fit of subsidizing children than they can expect that their share in personal
benefits from this policy will be.194 The government therefore forces some
people to pay more for a collective good than it is worth to them. I inter-
pret Musgrave's concept of merit good as capturing this idea. Indeed, a
merit good is a good that is so meritorious that the government is justified
in interfering with the preferences of consumers. I believe that the gov-
ernment can interfere both on the consumption side – providing the service
below cost or even free of charge, with or without obligation to consume –
and on the financing side – forcing some people to pay for what they have
no interest in buying.

193
See also the special supplement to Public Choice, vol. XXIX, 1977 devoted to demand
revealing processes.
194
Some authors use this point to object to the concept of public goods (Malkin & Wil-
davsky 1991, 355–78, particularly 372–73) or to limit the right of the government to pro-
vide public goods (Schmidtz 1991, 158–59). See chapter 6 for more detailed discussion of
this point.
190 8. Unjust Redistribution in the American System

In my view, both the concept of public good and the concept of merit
good are ideal concepts. Aspects of both can be present in concrete eco-
nomic activity. A full justification of subsidies for children paid for by
general revenue thus also requires a merit good argument (Priddat 1992,
246).195 I will provide such an argument in the following section.

III. The Moral Argument

Clearly, such a standard needs to be defended. One can develop two

lines of defense: one via a religious argument and the other via a secular
argument. The secular argument relies heavily on the research of Mary Jo
Bane and David T. Ellwood who write, “Almost 45% (40.9% plus 2.9%)
of poor two-parent families had a full-time worker, and well over half of
the poor families with two healthy parents had at least one full-time
worker....work is no guarantee of success for those at the lower end of the
wage spectrum” (1994, 11). They conclude, “Thus it is pay rates far more
than unemployment which drives poverty among two-parent families”
(Ibid., 12). If Ellwood and Bane are correct in their claims, I submit that
they provide empirical support for the moral standard advocated in Catho-
lic Social Thought.
The religious argument might run as follows. Human beings are created
in the image of God. God is love. The family is the human institution
where human love is most clearly present. Whatever undermines the fam-
ily is a threat to the divine design for human beings.
The religious and the secular argument about the family, as far as I see
it, reinforce each other. At the low end of the wage scale, family life is
threatened. This should be avoided on religious as well as secular grounds,
since studies show that such a low wage leads to poverty, which in turn
leads to great costs later.
In short, both secular and religious arguments can be found to provide
support for the claim of Catholic Social Doctrine that states that a society
is unjust if it does not provide a family wage. But clearly, a competitive
economic system using the market as its mechanism to determine prices

195
Some authors argue that every public good voted for by a majority against the will of a
minority must be considered as having a merit good aspect for the minority. That merit
good aspect often relates to the financing system disliked by the defeated minority (Priddat
1992, 246). I made the same argument about financing methods for education in Chapter 5,
Conclusion.
 IV. The Current Method of Subsidizing Children in the United States 191

cannot guarantee a family wage. Who would hire workers who are more
expensive simply because they have children?
Some have argued that the government should increase the minimum
wage. That proposal has met with political resistance. Another important
mechanism to transform the market wage into the moral category of the
family wage is income support for dependents. As most dependents are
children, I thus have discovered a moral argument for financing the public
good of subsidies for children.196 The public goods argument points to a
collective opportunity gain that can be realized. The moral or merit good
argument justifies financing the collective opportunity gain by means of
general revenue rather than by the benefit principle – general revenue be-
ing collected often on the ability to pay principle. Without the moral or
merit good argument, the financing method of child support is dubious,
because it adds a redistributive dimension to the provision of a public
good.

IV. The Current Method of Subsidizing Children in the

United States

In the tax year 1994, subsidizing children was achieved in the United
States 1) by allowing a pretax deduction of $2,450 for each qualifying de-
pendent from the adjusted gross income in order to calculate taxable in-
come; 2) by earned income credit; and 3) by child and dependent care ex-
penses. I will address only the pretax deduction.197 The 1994 tax code
establishes five tax rates: 15%, 28%, 31%, 36%, and 39.6%.198 As a con-
sequence, the deduction of $2,450 for each dependent has a different actual
net benefit for taxpayers in each of the five tax brackets. Not surprisingly,
it turns out that it is worth more if one is in the higher tax bracket, i.e., if
one has a higher income.199

196
In the early 1990's, both the Clinton Democrats and the Gingrich Republicans defended
new forms of child support. Mandate for Change (Kamarck and. Gallston 1993, 153–78),
expressing the thinking of the Democratic Leadership Council, recommended an $800 per
child tax credit for all preschool children. The fifth bill of the GOP’s Contract with Amer-
ica, called “The American Dream Restoration Act,” recommended, among other things, a
$500 per child tax credit.
197
I do not wish to address here whether my arguments could or could not be used for all
methods of subsidizing dependents.
198
See 1994, 1040. Form and Instructions. Washington, D.C.: U.S. Government Printing
Office, 1994, p. 53.
199
The actual benefit for a child deduction is obtained by multiplying the $2,450 deduction
by the tax rate. The savings increase with income until taxable income reaches $167,700.
192 8. Unjust Redistribution in the American System

Subsidizing children by means of a tax exemption thus has the curious

effect of giving a higher subsidy for children living in wealthier families
and giving a lower subsidy for children living in poorer families.
I cannot imagine reasons based on considerations of either efficiency
(i.e., public goods arguments) or justice (i.e., merit goods arguments) that
would favor a method of subsidizing children whereby those in the upper
income brackets receive what amounts to an $882.00 subsidy per child
while lower income groups receive only $759.50, $686.00, $367.50or
$0.00 per child.
A simple and straightforward alternative method of subsidizing children
is to make the subsidy a refundable tax credit. The change in method can
be made budget-neutral, and would, on a conservative estimate, probably
fall between $400 and $500 for each dependent.

Beyond that income, the benefit of the deduction is slowly phased out by a formula requir-
ing eight steps and described on p. 24 of the 1040 form. My calculation of how much the
$2,450 deduction lowers the tax burden in 1994 for families with different incomes is as
follows:
- between $0 and $367.50 for a family with taxable income between $0 and $2,450;
- $367.50 (15% of $2,450) for a family with taxable income between $2,450 and
$38,000;
- $686.00 (28% of $2,450) for a family with taxable income between $38,001 and
$91,850;
- $759.50 (31% of $2,450) for a family with taxable income between $91,851 and
$140,00;
- $882.00 (36% of $2,450) for a family with taxable income between $140,001 and
$167,700.
The benefit of the deduction slowly diminishes from $882.00 to $304.88 for a family
earning between $167,701 and $250,000.
The benefit of the deduction diminishes from $330.37 to $0.00 for a family earning be-
tween $250,001 and $290,200.
Above $290,200 the benefit of the deduction is disallowed or worth $0.00.
If the deduction moves the taxable income into a lower tax bracket, then the actual bene-
fit must be calculated in two steps. To calculate the benefit of the deduction applied to the
higher tax bracket income, one must multiply this part of the deduction by the higher rate.
The deduction applied to the lower tax bracket income must be multiplied by that lower
rate. As a result, one could say that if the deduction straddles taxable income brackets, then
the actual benefit of the deduction will be somewhere between the two appropriate values I
calculated above. For example, a family filing jointly having taxable income of $39,000
before using the $2,450 tax deduction for their only child will end up with a taxable income
of $36,500. Without that deduction they would have had to pay more taxes. For the part
below $38,000 that would be $1,450 x .15 = $217.50. For the part above $38,000 that
would be $1,000 x .28 = $280.00. The total benefit would be: $217.50 + $280.00 =
$497.50. As stated, this benefit ($497.50) falls between the benefit of the 15% tax bracket
($367.50) and that of the 28% tax bracket ($686.00).
 IV. The Current Method of Subsidizing Children in the United States 193

The net effect of the change would be to give the same dollar amount
for every child, regardless of the tax bracket of the parent(s),200 instead of
giving a lesser subsidy to children of parents with a lower income.
This change in method would thus constitute a transfer of income from
the upper income brackets to the lower ones, justifiable on grounds of both
justice and efficiency. The new method of financing would be imple-
mented explicitly as support for future labor productivity. As such, it
would involve outlays that would have to be counted as investment, not as
consumption. Compared with most other nations, the United States falls
behind in investment. This change in the method of subsidizing children
would thus also be a form of increased investment.201
On April 5, 1995, the House of Representatives voted in favor of a bill
granting a $500 tax credit for every child to every family earning less than
$200,000 per year.202 This bill, however, leaves the right to a deduction
for dependents intact. Furthermore, the bill does not make the tax credit
refundable. Thus, children of parents earning so little that they owe the
IRS less than $500 do not receive the full subsidy. My argument appeals
to both efficiency and equity. On both grounds children of lower income
families should be supported more, not less. Thus, the new bill fails to
correct an objectionable practice of not subsidizing children of the lowest
income parents on an equal basis as some other children of parents who
earn more.

200
The changes in method for subsidizing children could also include a phasing out of the
subsidy above a certain taxable income, e.g., filing jointly and earning more than $75,000,
$95,000, or $167,700. $167,700 is used as a benchmark for phasing out the subsidy in the
1994 tax code. Both the public and the merit good arguments would encourage increasing
the subsidy for lower income families. Phasing out the subsidy for higher income families
is one method of doing so. My general argument does not allow me to specify the method
of such a phase-out. It does, however, allow me to argue for some kind of phase-out, and
for a method resulting in a higher subsidy for children in lower income families. My per-
sonal preference would be that the subsidy not be phased out completely but phased down
to say a $50 or $100 tax credit. All children deserve, in my opinion, at least a symbolic
welcome into the world.
201
This change in method could also simplify the tax code as the current phasing out re-
quires eight different steps. (IRS 1994, 1040 Forms and Instructions, p. 24).
202
The $200,000 limit is adjusted gross income. The $500 tax credit is phased out between
$200,000 and $250,000, according to the office of Representative John T. Doolittle of Cali-
fornia.
194 8. Unjust Redistribution in the American System

Conclusion

The United States political system through its tax laws makes collective
decisions. Starting in 1995, its tax laws provide financial help for families
with children in four ways: 1) a pretax deduction for a qualifying depend-
ent. 2) a child credit. 3) earned income credit. 4) credits for child and de-
pendent care expenses.
I have argued that the first two tax measures can be defended on eco-
nomic and moral grounds. I have also argued that the specifics of those
two tax measures are defective for both economic and moral reasons.
The economic reasons in favor of subsidies for families with children
rest upon a public good argument. Children provide an opportunity of col-
lective gain. I pointed to three economic reasons for the possible collec-
tive gain in subsidizing families with children: increased future productiv-
ity by money invested in education of the young; diminished health care
costs derived from money invested in prenatal care and expanded health
care costs to children; and greater collective pride and happiness derived
from not seeing hungry, sick and neglected children. The above collective
gain cannot be realized by a single individual, without the assured help of
all other individuals. Legislation, for instance tax laws, can guarantee that
all will properly contribute to the cost of realizing the potential collective
gain.
For the moral argument I used Catholic social thought, the political
manifestos of the Democrats’ Mandate for Change and of the Republicans’
The American Dream Restoration Act, and the academic work of Bane and
Ellwood. Catholic social thought calls for the realization of a family wage
defined as a one person wage which can support a whole family. The free
market cannot be expected to produce such a morally desirable goal, since
this would demand that a worker with children be given, under certain cir-
cumstances, a higher wage than a single person regardless of their respec-
tive economic performance. Hence the government is called upon to sup-
plement wages by child subsidies in one or another form. This is precisely
what both political manifestos are acknowledging by advocating a child
tax credit, even though the two parties disagree on the amount. The re-
search of Bane and Ellwood demonstrates that “well over half of the poor
families...had at least one full-time worker....Thus it is pay rates...which
drives poverty [even] among two-parent families” (1994, 11-12). If the
free market cannot increase the lowest wages then the government must
find methods to supplement incomes of the (working) poor. Some of
these supplements need to be tied to the amount of children as the children
increase the economic burden of a family.
 Conclusion 195

The American political system listens to several ideas to guide its tax
legislation. I demonstrated that these ideas lead to curious results, which I
called both economically inefficient and morally unjustifiable. The
American Congress allows itself to be guided by the economic argument
that there is a potential collective gain that can be captured by subsidies to
children, that is also morally praiseworthy. Thus in 1995 a law was passed
granting a $500 tax credit for every child.203 In 2003 the tax credit for
every child was increased to $1,000.204
The American political system is also regularly motivated to reduce
taxes and to limit or diminish so-called hand-outs to the poor. This idea
leads to a tax law that makes the child-credit purely a credit and not a re-
fundable credit. Consequently, if a family has a tax bill that is less than the
child credit, then those low income families do not receive the full benefit
of the child credit or in the extreme case receive no benefit from the child
credit tax bill. The same idea in favor of ideas promoting tax deductions
also leads to a tax law with the right for an income deduction for each de-
pendent. Given the fact of progressive taxation, it follows that a subsidy
by means of a deduction results in a greater dollar benefit for higher in-
come families and a lower dollar benefit for lower income families.
The two laws supporting children which are also influenced by the mo-
tive to reduce taxes are economically ineffective, because one should ex-
pect that subsidies would have a greater economic impact if provided to
families with lower income than with higher income. These two results
are also morally questionably. If it is morally desirable to give support to
families with children, then it seems evident that it is morally desirable to
help poorer families more than richer one. It would seem morally undesir-
able to help children of richer families more than those of poorer ones.
The current American method of helping families with children through
the tax system is thus defective on both economic and moral grounds.

203
In 1995 the child tax credit was phased out for incomes above $200,000 (office of Rep-
resentative John T. Doolittle of California). In 1999 calculations for the phasing out of the
$500 child tax credit start at $110,000 income when married filling jointly (IRS 1999, 43).
204
In 2003 the child tax credit was not phased out for high incomes (IRS 2003, 40–41).
 Section II

Challenges in Transforming Command

Economies
9. The Role of Religion and Civil Society in a
Transformed Command Economy

Abstract

Both Marx and Hegel understood that there is a social question in the capi-
talist system: poverty of the labor class and the unemployed. Command
economies used the all powerful state as an instrument to try to solve the
social question in an industrial world. Command economies failed eco-
nomically. Most command economies have now moved towards a free
market system in which the state has abandoned its substantial powers to
interfere and direct the economy. How can these societies deal with the
social question, given that they have abandoned an important tool they
used in the past: the all powerful state? Before addressing this question I
provide arguments as to why the free market system is to be preferred to a
command economy. Notwithstanding the arguments in favor of the free
market, I argue that the free market itself cannot solve the social question.
I then point out that command economies making the transition to the free
market will have to take additional steps if they also want to keep address-
ing the social question. They will have to look for allies like organized re-
ligion. The move towards the free market therefore demands the promo-
tion of intermediate institutions. This argument is then extended to some
of the additional problems that a state, moving towards a free market, un-
avoidably faces (free trade hurting local industries, binding legal arrange-
ments that eliminate abuses). Civil society is thereby given an essential
role in a reformed command economy.

I. A Hidden Challenge in the Transition to the Free Market

Marx argued that the free market (or the capitalist system) is driven by the
profit motive, that the profit motive requires the individual capitalist to
obey the laws of Capital, and that these laws do not allow the capitalist to
200 9. The Role of Religion and Civil Society

pay attention to human needs. Thus, Marx formulated the idea that there is
a social question that emerges with the advent of capitalism.205 He even
went so far as to argue that capitalism was inherently contradictory and
had to be replaced by another economic system. Marxian thought led to
the creation of two kinds of economic systems: the command economies
practiced in Eastern Europe, Russia, China, and some developing countries
and the socialist economies promoted and defended by socialist parties all
over the world. The most successful model of a socialist economy has
been that of the Scandinavian countries.
The defenders of the idea of a command economy claimed to be the real
heirs of Marx's thought. The theoreticians favoring a socialist economic
system were aware that they were modifying Marx's ideas in essential
ways. In this chapter, I will not address this modified Marxism.
The economists of the Austrian school are considered to be among the
most important theoreticians of the pure free market. One of that school's
members, Ludwig von Mises, argued already in 1920 in his article “Eco-
nomic Calculation in the Socialist Commonwealth,” that a command econ-
omy (a communist economy) is not a rational economy (Von Mises 1975,
104-105). Von Mises gave an argument for that view. A decade ago,
Deng Xiaoping and Gorbachev acted and spoke in a way that amounts to a
public confession that command economies are less than optimal ways of
organizing economic life.
Marxism was an attempt to analyze and correct the failures of capital-
ism, in particular the massive suffering of the labor class. The low wages,
the long working hours, the unhealthy conditions of many industrial work
places, child labor, and the lack of security because of recurring unem-
ployment are among the evils that Marxism perceived as inherent in capi-
talism. European historians refer to this problem as “the social question.”
However, trying to solve the social question by means of a command
economy is a mistake, because a true solution requires that goods and ser-
vices be produced in an efficient way. A command economy cannot pro-
duce efficiently and thus lacks the means to adequately remedy the suffer-
ing of the labor class.
Conclusions should always be modest. One should not overshoot.
Marxist economic solutions to the social question have been a failure.
Still, I am not prepared to argue that Marx was also mistaken in the prob-
lem he saw in an economy based on the free market.206 Even Hegel, an ar-

205
The Catholic Church, a major player in the organization of European society, has de
facto recognized the correctness of the Marxian diagnosis by the publication of several en-
cyclicals on this subject: Rerum Novarum, Quadragesimo Anno, and Centesimus Annus.
206
Whereas in this chapter I restrict myself to Marx’s way of dealing with the social ques-
tion, one can find in the book by Louis Dupré (1983) a work that analyzes Marx’s view on
 II. Arguments in Favor of the Free Market 201

dent supporter of the free market, sees the social question as a very serious
problem for a society which uses the free market when he writes:

It hence becomes apparent that despite an excess of wealth civil society is

not rich enough, i.e. its own resources are insufficient to check excessive
poverty and the creation of a penurious rabble. (PR, # 245)207

The above analysis dictates the points I will develop. First, I will discuss a
number of arguments in favor of the free market. Then, I will articulate some
reasons why the free market cannot avoid the social question diagnosed by
Marx. Finally, I will give suggestions for a solution for the social question in a
society moving away from a command economy.

II. Arguments in Favor of the Free Market

A. Primary Argument

The economy is a domain of social reality. There are other domains, such
as the political, religious, recreational, and cultural domains. Each of these
domains has primary goals. The organization of a domain should be
judged, in the first place, by the way it contributes to or hinders the attain-
ment of the primary goal. Thus, if the recreational domain is organized in
such a way that it increases political loyalty or national income or religious
feeling, while at the same time, it does not provide recreation, I would
claim that such an organization of the recreational domain is defective. If
this principle is accepted, then we have the first criterion for the proper or-
ganization of the economic domain. The primary goal of the economic
domain is to produce the goods and services that are needed, desired, and
demanded in society.
Now, the free market is a method of organizing the economic domain
which, in fact, succeeds better in mobilizing the productive forces of soci-

the role of praxis for a more wholesome culture. Dupré acknowledges that Marx correctly
saw a problem, but he also disputes that Marx saw the correct solution. See in particular
“Conclusion: Culture reintegrated through Praxis” (Dupré 1983).
207
In his book Hegel's Theory of the Modern State, Shlomo Avineri writes: “Hegel remarks
that it [poverty] remains inherent and endemic to modern society” (p. 153). Avineri further
comments that: “This is the only time in his system when Hegel raises a problem—and
leaves it open” (p. 154). For an analysis of the arguments leading towards Hegel’s pessi-
mism see in this book: Chapter 3, Section III (towards the end) and Chapter 4, both Section
IV (again towards the end) and the conclusion.
202 9. The Role of Religion and Civil Society

ety – and thus, in attaining the primary goal of the economic domain – than
a command economy or a mercantilist economy. The free market econ-
omy succeeds better both for technical and motivational reasons.
The technical reason is that the pure competitive free market eliminates
the ability of individuals (in particular politicians) to arbitrarily intervene
in the production process.208 Instead, it operates by means of a market-
generated pricing mechanism combined with the freedom of individuals to
buy and sell, produce, and consume. Neither prince, nor lord, nor bureau-
crat can tell a member of the free market what to buy or sell, produce or
consume. In the free market, the pricing mechanism is allowed to do its
work of matching what people are capable of producing with what people
are willing to buy. A necessary part of an effective market-generated pric-
ing system is a monetary system in which payment gives economic actors
the automatic right to a claim on real goods. It is inefficient and thus a
violation of the first goal of the economic domain to produce goods at such
a high cost that people are not interested in buying them or to price pro-
duced goods so low that the producers cannot profitably make them. A
command economy constantly violates that first goal of the economic do-
main. A free-market economy obeying a pure competitive pricing system
allows for the possibility of achieving that first goal. In a very strong
statement, von Mises summarizes this point as follows: “Where there is no
free market, there is no pricing mechanism; without a pricing mechanism,
there is no economic calculation” (Mises 1973, 173, 105, 107, 110, and
130).
The motivational reason why a free-market economy succeeds better in
realizing the first goal of the economic domain is that the free market im-
poses a rule on the economic domain that ties consumption to production.
Indeed, the competitive free market is organized in such a way that it re-
fuses the participants the means to buy anything unless they first produce

208
Clearly, the emphasis here is on arbitrary intervention. That politicians need to inter-
vene in the market was defended even by Adam Smith. Smith formulates the point this
way:
According to the system of natural liberty, the sovereign has only three duties to at-
tend to; three duties of great importance, indeed, but plain and intelligible to com-
mon understandings: first, the duty of protecting the society from the violence and
invasion of other independent societies; secondly, the duty of protecting, as far as
possible, every member of society from the injustice or oppression of every other
member of it, or the duty of establishing an exact administration of justice; and,
thirdly, the duty of erecting and maintaining certain public works and certain public
institutions, which it can never be for the interest of any individual or small number
of individuals, though it may frequently do much more than repay it to a great soci-
ety. (1937, 651)
 II. Arguments in Favor of the Free Market 203

something that others want to buy.209 In the pure competitive free market
someone who does not produce has nothing to sell to others. If one has
nothing to sell one does not have any income. If one has no income one
cannot buy anything. Similarly, if one produces things one likes to pro-
duce, but there are no buyers for them, then it follows that one cannot sell
one's products. Again, one has no income and, thus, again one cannot buy
what one wants and needs, even though the product was produced with
great care, with great pleasure and even with great love. Thus, the rule
dominating the competitive free market is a double rule: one must produce
and one must produce what others want.
The binding character of this rule is expressed in one word: must. The
binding character expressed in this word is of a totally different nature than
Kant's categorical imperative. Whereas the binding character of the
“must” implied in Kant's categorical imperative is purely moral, the bind-
ing character of the free market is more primitive. It has to do with sur-
vival. If you want to eat you must work.
The binding character present in the free market's rule that one must
produce cannot be derived from the different motivations for which people
work. Indeed, some people simply like to keep themselves busy. Others
enjoy the pride that goes with being skillful. Others just love to work.
However, none of these reasons produces a must. Rather, they tie work to
the wishes or motivations of the workers. For an economic system, this is
too contingent a motivation. The competitive free market is able to go be-
yond such contingent motivations and ground production in a “must.” It
does so by means of an anonymous threat that is executed automatically.
The threat is that one will be granted access to goods and services needed
for survival (food, lodging, clothing, medical care, etc.) only if one pro-
duces something that others want to buy. Given that everybody needs
goods and services in order to survive and build a human life, the threat
functions as a binding rule, a “must.” Hence, even though the free market
creates freedom of choice, it is based on a threat.210
The British economists of the 18th and 19th centuries did not stress very
much the threat inherent in this basic rule of the free market. Rather, they
stressed the socially beneficial results of that rule. When the rule is opera-

209
Von Mises formulates the motivational argument, restricted to the role of the manager,
as follows: “for in practice the propertyless manager can only be held morally responsible
for losses incurred. And so ethical losses are juxtaposed with opportunities for material
gain. The property owner on the other hand himself bears responsibility, as he himself
must primarily feel the loss arising from unwisely conducted business. It is precisely in this
that there is a characteristic difference between liberal and socialist production” (Id., 122).
210
Hegel already understood this rule, in writing: “It follows that this unity is present here
not as freedom but as necessity, since it is by compulsion that the particular rises to the
form of universality and seeks and gains stability in that form” (PR # 186).
204 9. The Role of Religion and Civil Society

tive, the social system can disregard the motives of individuals. It need not
expend resources to promote virtues such as high-mindedness and generos-
ity. It can tolerate selfishness and greed. A social system obeying the ba-
sic rule of the free market ties the self-interest of the individual to the in-
terests of the community. And thus, as by an invisible hand, this rule
guarantees that the primary goal of the economy (production of what peo-
ple need) will be satisfied.211 And indeed, the free market has been recog-
nized, even by its critics, as the type of societal organization that is best
capable of mobilizing the productive forces of society (Marx & Engels
1948, 11–14).

B. Secondary Arguments

1. Freedom

The free market provides freedom of choice. A command economy re-

stricts the range of choices. On the basis of this difference alone, there are
three reasons to prefer the free market.
First, there is a moral argument. Human beings are essentially moral
agents. To be a moral agent, it is required that one be able to make
choices. The free market allows economic actors to make more choices
than does the command economy. A command economy restricts the pos-
sibility of making choices to a limited number of political actors.
Second, there is an argument that can be made from an historical per-
spective. The modern period is the period in which the principle of subjec-
tivity emerged. It emerged in philosophy with Descartes, in religion with
Luther, in society-at-large with the arrival of the principle of individual in-
sight required by the truth of natural sciences, and in morality with Kant.
The principle that the subject is the grounding of truth and legitimation
was applied to social organizations in Rousseau's political ideas. Accord-
ing to Hegel's analysis of the French Revolution, the application of the
modern demand that the subject be the basis of political decisions was dis-

211
This rule was given the poetic name of the “invisible hand” by Adam Smith. Let us
quote him: “he [the individual] intends only his own gain, and he is in this, as in many other
cases, led by an invisible hand to promote an end which was no part of his intention. Nor is
it always the worse for the society that it was no part of it. By pursuing his own interest he
frequently promotes that of the society more effectually than when he really intends to
promote it” (1937, 423).
 II. Arguments in Favor of the Free Market 205

astrous: it led to the terror of Robespierre.212 However, that modern prin-

ciple of subjectivity is not disastrous if it is applied to the economic do-
main. The free market thus allows the modern spirit to find a social or-
ganization that gives it a proper embodiment.213
Third, there is the peculiar requirement inherent in freedom. In order to
be free one must feel free. To feel free one needs to have the opportunity
to make some arbitrary choices. It is, however, desirable that these arbi-
trary choices should not have grave negative consequences. (Thus the ar-
bitrary wish to harm others obviously cannot be tolerated; the arbitrary
wish to have a direct say in making laws cannot be tolerated, because it
would bring the legislative process to a halt.) The free market provides the
opportunity to individuals to make arbitrary and mostly innocuous choices.
The free-market system restricts the damage that follows from such arbi-
trary choices. In this way, the free market contributes to an essential di-
mension of human freedom: a great deal of arbitrariness is tolerated, and
thus individuals are capable of feeling free.

2. The Economic System as an Ethical Institution

Both the free market and the command economy can be understood as
ways of ethically organizing the economic domain. Adam Smith presented
the argument for the ethical character of the free market. Marx presented
the argument for the command economy. The free market has the more
subtle – and, as I will argue, the better – argument. An ethical institution is
an objective embodiment of the moral intention and must, therefore, by
definition, incorporate the moral intention. The moral intention requires
two things: that one intends to do something good, and that one does so
freely. As for the first requirement of doing a good, we argued above that
the good of the economic domain is the production of goods and services
desired by consumers. The free market fulfills this first requirement better
than a command economy. With reference to the second requirement –
i.e., that good be done freely – one can point to the fact that, both in pro-
duction and consumption, the free market allows many more actors the
freedom to decide and allows that freedom over a greater domain than does
the command economy. Because the two requirements of the moral inten-
tion are better preserved in the free market than in a command economy,
212
Hegel 1967 c: “Absolute Freedom and Terror,” 604: “Universal freedom can thus pro-
duce neither a positive achievement nor a deed; there is left for it only negative action; it is
merely the rage and fury of destruction.” For a study of that claim see W. Ver Eecke 1975
a. I summarized that study in this book in Chapter 2 Section A “The Rejection of the Rous-
seau Type of Direct democracy.”
213
For an elaboration of this claim by Hegel see Chapter 2, Section C of this book.
206 9. The Role of Religion and Civil Society

one can claim that the free market represents a higher form of ethical or-
ganization of the economic domain. There is one complication. The
command economy demands that the good – e.g., provision of housing,
food, medical care, education to the total population – be directly targeted.
The free market, on the other hand, does not require from its actors that
they aim directly at the good. The free market, thus, has the appearance of
lacking moral content. It allows its actors to aim at their personal benefit
and relies on the theory of the invisible hand to guarantee the good (Smith,
423). If the invisible hand does not work, the free market, as economic
system, is powerless and needs help from somewhere else. I will address
this dilemma later in this chapter.

3. Labor in Its Harsh and Alienating Dimensions

Work and labor are humanizing. But work and labor also have their harsh,
even alienating, aspects. Social conditions can improve or worsen the
harsh and alienating aspects of work.214 No degree of social engineering,
however, can take away all of the harshness and alienation of work. There
remains for each individual human being a psychological task of dealing
with the ontological harshness of work.215 The organization of a command
economy provides individuals an excuse to point an accusing finger at the
political system for the harshness and alienation connected with work
(Chapter 3, Section II of this book). The free market, by contrast, invites
individuals to accept the harshness of work as inherent in the human condi-
tion. The harshness of work that is needlessly created by the system is ad-
dressed in the free market by the politically tolerated institution of union
protest and activity. A free market in which unionization has a place deals
better with the harsh and alienating aspects of labor than a command econ-
omy does.

214
Marx points out that work produces value that is not totally returned to the labor force.
The labor force is thus alienated from the value it produces. In harsher language Marx calls
this also theft. Hegel points to another form of alienation in work, particularly when work
is service. In service persons are asked to execute the commands of another and are thus
deprived of the possibility of expressing their minds in their work. Service is done never-
theless, because of a threat. In slavery it was the threat of death. In the capitalist system it
is the threat of starvation or bankruptcy.
215
The Christian tradition sees the harshness of labor as having an ontological dimension.
Indeed, it attributes that harshness not to accidental sociological factors, but to the fall of
Adam and Eve.
 III. The Social Question and the Limits of the Free Market 207

4. Precariousness of Moral Choice

Individuals might, from time to time, feel inclined to oppose the state on
moral grounds. Sometimes such an opposition is morally desirable. How-
ever, in a struggle between an individual and the state, the power is un-
evenly divided: power resides overwhelmingly with the state. In a com-
mand economy the state has on top of this imbalance the power to deprive
an individual of the possibility of earning a living. In a free-market econ-
omy, the state does not have this additional power. Moral opposition to
the state thus has one less threat to face in a free market society.

III. The Social Question and the Limits of the Free Market

The free market as such does not solve the social question. Let me de-
velop two reasons for this claim.
1. In every economy there are individuals who do not have the average
capabilities necessary to earn a living. There are disadvantaged and handi-
capped people. Without special help such individuals can be condemned
to unhuman conditions if only because they cannot make a living.
2. The free market is not fair in its distribution of hardship. There are at
least three forms of economic harm that are not connected with moral vices
in the individuals that are hurt. First, the free-market economy is cyclical:
there are depressions as well as booms. The cyclical nature of the free-
market economy is system-generated. The harm falls on individuals. Sec-
ond, the political system sometimes needs to take action for the well-being
of the whole even if that action hurts subgroups. Third, economic systems
behave in unpredictable ways. Skills that were once very useful suddenly
become outdated. If the system behaves in unpredictable ways, individuals
cannot be faulted for lack of foresight.
These three factors can cause hurt to individuals through no fault of
their own. Let me illustrate my claim with one concrete example. If the
U.S. Federal Reserve Bank decides—let us assume for valid reasons—to
increase interest rates in order to fight inflation, it follows that interest-
sensitive sectors of the economy (e.g., housing construction and car manu-
facturing) will necessarily experience increased unemployment. This is
system-generated unemployment. Individuals who are not the cause of
unemployment are asked to suffer the penalty of that unemployment. In
even stronger terms, unemployment is the predictable result of an eco-
nomic action undertaken for the benefit of the whole society.
208 9. The Role of Religion and Civil Society

A society that suffers injustice is a society which is ill. Even if the ill-
ness is generated by an institution which produces many advantages, it re-
mains an illness. Such an illness needs to be addressed. The question
emerges as to how former communist countries will address that illness,
given that these countries have conceded that the creation of a command
economy is a defective way of dealing with social injustice.
Social injustice is, however, only one of the problems created by the in-
troduction of the free market. I see three more problem areas that neces-
sarily arise from the introduction of the free market.
First, the free market can provide its benefits only if it is competitive.
However, every producer can envision great benefits from an escape from
competition. The free market is not capable of enforcing competitiveness.
Some other institution has to do so.
Second, the free market relies on a specific micro-economic mechanism
to produce “as by an invisible hand” a socially desirable outcome. That
micro-economic mechanism is self-interest (sometimes equated with the
profit motive, though this equation is not quite correct, since the profit mo-
tive only covers producers and not consumers). But, if the market is
guided by a micro-economic mechanism, then it clearly cannot be trusted
to be self-regulating at the macro-economic level. The case of an economy
in which there is a threat of unemployment provides an example of the
limited ability of the market to deal with macro-economic phenomena. At
the micro-economic level it is rational for individuals to react to the risk of
unemployment by saving. But, saving means diminishing expenditures.
Diminishing expenditures, at the micro-economic level, mean that at the
macro-economic level there will be less demand for produced goods. But,
less demand for produced goods means increased unemployment. We,
thus, have here an example of a rational micro-economic reaction that
leads to an increase in macro-economic problems. If the free market relies
only on the micro-economic incentive of self-interest, then an institution,
other than the free market, will have to be responsible for macro-economic
stability.
Third, the free market is based on self-interest as perceived by the ac-
tors. The free market can, therefore, not be expected to produce the most
socially or objectively desirable outcome. External costs and benefits will
not automatically be taken into account, neither in production nor in con-
sumption. If there are two production methods, one cheaper but more pol-
luting, for example, then the competitive free market would encourage a
producer to use the cheaper method. Increasing the risk of cancer to by-
standers (passive smoking) does not deter the consumption of tobacco.
This problem is normally dealt with under the heading of externalities, or
more generally, public goods.
 IV. Social Question and Other Problems Arising from a Free Market? 209

IV. To Which Institutions Should One Turn in Addressing

the Social Question and Other Problems Arising from a
Free Market?

I will focus my reflections in this chapter upon the social question: what to
do with poverty, particularly with poverty of the working poor. It is my
hope that the communist elite would still be concerned with the social
question even when they have decided to go in the direction of a free mar-
ket economy. In that case I believe that there is a common concern for
dealing with the social question or more generally with the question of
poverty between the communist elite in turning to the free market and my
philosophical (Hegelian) understanding of the free market economy.
I wish to separate the two aspects I see in that question. The first aspect
is the question of redistribution. This is normally associated with the ques-
tion of justice. The second aspect is the problem of creating an economic
pie which is big enough so that redistribution is meaningful. This raises
the question of making the economy efficient.

A. The Redistributive Aspect of the Social Question

A society moving away from a command economy and incorporating free

market principles is moving away from an all-powerful conception of the
state. The question that arises immediately is: how will a state with dimin-
ished power perform the tasks for which it thought that absolute political
power was necessary? My simple argument is that a state moving towards
a free market should look for appropriate allies.216
In Hegelian terms the move from a command economy towards a free
market is a move that recognizes the principle of modernity: subjectivity or
individuality. The state will therefore have to find allies who accept and
embody this new principle.217

216
Michael Novak has argued that even the state in an existing free market as in the West
needs to rely more on appropriate allies, i.e., intermediate institutions (1989, 201–08 and
281).
217
In his encyclical Centesimus Annus, John Paul II reminds his audience that Catholic so-
cial thought since Rerum Novarum has stressed that the social nature of human beings is not
completely fulfilled by the state. Various intermediate groups have their own functions.
Interesting for our argument is that John Paul II claims that these intermediate groups rep-
resent the “subjectivity” of society. He further claims that both the subjectivity of the indi-
vidual and the subjectivity of society were excluded by socialism. John Paul II thus arrives
at the same conclusion as I did, though by means of a different framework (John Paul II
1991, # 13).
210 9. The Role of Religion and Civil Society

The social question is in the first place a moral question, although it

does have, secondarily, economic consequences. Among the most impor-
tant institutions concerned with morality are the churches. If a Marxist
state moves towards a free-market economy and wishes to remain con-
cerned with the social question, it should also introduce freedom of relig-
ion.218 The communist elite incorporating free market principles can ex-
pect from a legal recognition of religion the emergence of intermediate
institutions (organized churches) which have an inherent interest in the
poor and thus in redistribution. The communist elite can also expect that
organized religion will develop expertise in efficiently helping the poor.219
Having introduced a measure of freedom in society by accepting free
market principles, the communist elite can expect that the church will un-
derstand that it now has a different function to perform. Instead of being a
rallying point for symbolic and effective opposition against the repression
of the state, the church will now likely see its task as heightening the moral
conscience of the citizens so that they are willing to contribute towards the
alleviation of the social question. The citizens will be asked to act as indi-
viduals: they will be asked to vote for government officials, to contribute
to private charitable organizations, and to vote for programs in their private
organizations (e.g., unions). Within this transformed society churches
likely might concentrate on forming conscience, and providing moral im-
pulses to the citizenry.
A similar argument can be made for other tasks of the government in a
society which accepts free market principles. The government which has
adopted free market principles will be a less powerful government. In con-
fronting its many tasks, the new kind of government will need to appeal for
help and support from appropriate legally recognized organizations. Some
of the tasks of the government discussed in this book are the responsibility
for economic policy. Economic policy includes dealing with property
rights, creating anti-trust laws, providing measures to control business cy-
cles, providing monetary policy, and drafting laws for the protection of the

218
This technical conclusion supports and agrees with Dupré’s work on Marx, where he
praises Marx’s original insight while deploring its narrow economic vision: “One cannot
but regret this trend towards economism in a philosophy which contained such a profound
and original theory of action...Its end is a messianic salvation of man so total that all need
for a transcendent redemption ceases to exist” (Dupré 1966, 230) and also (Dupré 1993, 4).
219
For empirical evidence see: Brown, D. M., & McKeown, E. The Poor belong to us:
Catholic Charities and American Welfare and Morris, R., & Freund, M. (Editors). Trends
and Issues in Jewish Social Welfare in the United States, 1899–1952.
 IV. Social Question and Other Problems Arising from a Free Market? 211

environment.220 But, these policies will affect the lives of individuals.

Here, too, the modern principle of subjectivity will have to be recog-
nized.221 The state will have to tolerate, to legitimize, and to encourage the
formation of independent groups capable and willing to speak for the
worker, the consumer, the producer, and the environment. Thus, the state
will have to tolerate and promote professional organizations that typically
try to support the values represented by their professions – the economic
profession promoting economic efficiency, the legal profession promoting
fair treatment under the law, the association of health providers, and the
social workers promoting physical and mental well-being, etc. The state
will need the help of these professional organizations in justifying to the
broader public the wise and prudent use of its force to impose such meas-
ures as anti-trust laws, regulations to protect the environment, and fair-
trade laws.

B. The Efficiency Aspect of the Social Question

If any state wants to alleviate poverty it needs to create an economy which

is efficient enough to produce the means to alleviate poverty. A reason-
able approach to the social question and the alleviation of poverty cannot
be the creation of equality at such a cost to efficiency that a substantial part
of the population is subject to famine. This certainly is not a reasonable
approach if an alternative approach would have created a measure of
abundance.
I wish to discuss three ideas for the creation of an efficient economy:
the question of motivation, the question of the necessary government tasks,
and the question of the role of non-governmental community governance.

a. Self-Interest and Beyond

A communist elite accepting free market principles must and does indeed
recognize and legitimize what Hegel calls the principle of subjectivity. In
such a society the individuals are allowed to decide in more domains of

220
In chapter 5, entitled “The Concept of ‘Merit Good’ and the History of Economic
Thought,” I defend the first three categories of governmental tasks and call them merit
goods.
221
In # 552 of the Encyclopedia, Hegel compares the state with religion. He argues that
both relate to and are determined by the same Spirit. I would like to argue that it is not just
the state and religion that are determined by the spirit of the times. All intermediate institu-
tions, if they are to be effective, must accept the spirit of their times. In modern times that
spirit is clearly the introduction of the principle of subjectivity.
212 9. The Role of Religion and Civil Society

their lives. Specifically, they are allowed to make for themselves most
economic decisions as the economy is now a free market economy. Adam
Smith argues that enlightened self-interest is an important motivation for
the success and efficiency of the free market economy. Starting with a
general observation, Adam Smith notices:

In a civilized society he (any human being) stands at all times in need of the
co-operation and assistance of great multitudes, while his whole life is
scarce sufficient to gain the friendship of a few persons. (Smith, 14)

He argues that human beings will need more than friendship or benevo-
lence to get from others what they want or even need. Adam Smith sees
self-love or self-interest as a necessary motivation in modern society, or to
put it differently, he sees the rationality of modern society in its capability
to legitimize self-love or self-interest. He formulates his argument as fol-
lows:

But man has almost constant occasion for the help of his brethren, and it is
in vain for him to expect it from their benevolence only. He will be more
likely to prevail if he can interest their self-love in his favour, and shew
them that it is for their own advantage to do for him what he requires of
them. (Smith, 14)

Adam Smith summarizes his argument rhetorically in his famous quote: “It
is not from the benevolence of the butcher, the brewer, or the baker, that
we expect our dinner, but from their own regard” (Id., 14).
However, a contemporary understanding of an efficient free market sys-
tem points to the fact that there is a legitimate place for altruistic motiva-
tions and thus for motivations beyond self-interest. Here I wish to rely on
the writings of Amartya Sen. Sen distinguishes motivation for action be-
tween self-interest, sympathy and commitment (1977, 326–29). He then
focuses on commitment and writes that “commitment is, of course, closely
connected with one’s morals” (Id., 329). Commitment is something peo-
ple feel they ought to do or not do, regardless of personal advantage.
Hence, commitment “drives a wedge between personal choice and per-
sonal welfare” (Ibid.). Sen observes that “traditional economic theory re-
lies on the identity of the two” (Ibid.). Sen then argues that there are two
ways to demonstrate the erroneousness of the traditional economic theory
of the all importance of self-interest. First, he points out that Adam
Smith’s argument only applies to the economic domain of exchange. Sen
further asserts that a modern economy is not just exchange but production
activity as well. Efficient production is done by corporations which rely
 IV. Social Question and Other Problems Arising from a Free Market? 213

on all kinds of co-operation. Sen enumerates: dutiful activity, unsuper-

vised reliability and a concern for efficiency (1995, 25).
Second, Sen turns his attention to the domain of exchange in a modern
economy. He points out that exclusive reliance on self-interest, where one
expects that others might cheat as soon as it is in their interest to do so,
would require an enormous and costly expansion of the use of the legal
system. Trust in the domain of exchange is an efficient way to do eco-
nomic exchanges.
Broadening his attack on the exclusive theoretical defense of self-
interest in traditional economic theory, Sen points out that economic the-
ory demonstrates that unrestrained self-interest leads necessarily to the un-
der-provision of public goods such as education, health care and even pub-
lic safety (Ibid., 27). Many of these public goods are nevertheless
provided in the capitalist system by the creation of institutional arrange-
ments. Sen’s reflections on the importance of non-self-interest motives
leads him to introduce the need for governmentally sanctioned institutional
arrangements.222

b. Governmental Tasks

There is a long tradition in the economic literature about governmental

tasks that is necessary for an efficient economic system. Let me make the
argument first by means of an article by an economist, Richard R. Nelson.
Nelson argues that the government has a necessary role in the organization
of the economy for two different reasons. First, there are pure economic
reasons, which Nelson lists as areas where the government has a role be-
cause of market failures caused by the presence of a public good or by
asymmetries in information (2002, 225–232). Second, there are a number
of non-economic reasons. Nelson argues that people do not want the free
market to control the police, the army, or the foreign policy of a country.
He further argues that it is the government’s task to guide the economy in
the direction that the population values, (e.g., subsidizing health and edu-
cation, and legally stipulating who the stakeholders are in environmental
disputes for the purpose of using the court system).

222
Sen admiringly refers to Japan whose economic success was enhanced by co-operation.
He then formulates this ironic paradox: “arguably the most successful capitalist nation in
the world flourishes economically with a motivation structure that departs firmly from the
pursuit of self-interest, which-we have been told-is the bedrock of capitalism” (Sen 1995,
28).
214 9. The Role of Religion and Civil Society

Having made his general claim, Nelson then draws attention to some
questions of detail. He argues that in a modern economy it is not a matter
of arguing for or against the role of the government but rather a matter of
learning what mixture of government regulation and free market is appro-
priate for different areas of the economy. Thus the chemical and pharma-
ceutical industries are very dependent upon patent law (Ibid., 236), both
the telegraph and railroad systems demanded government support to get
started (Ibid., 235), the airline industry works under stringent safety con-
trols and the medical profession works in a competitive environment with
both controls and large forms of subsidy (medicare and medicaid). Nelson
further argues that the government legitimately becomes the vehicle for the
embodiment of societal values such as mandatory rest on Sundays or the
presence or absence of policies for conservation of oil products (Ibid., 234)
and the promotion of constructive civil life (Ibid., 235).
Based on the ideas developed, for example, in the chapters in this book
concerning the problem of merit and public goods I largely agree with Nel-
son’s broad defense of the need for governmental tasks in the economy and
of his description of the complexity of finding the proper balance of gov-
ernmental intervention for every area of the economic domain. For my
part, I argue for broadly defined categories of governmental tasks. I have
come to see the need for eleven such broad categories.223 The first broad
category deals with property rights. The government has to specify prop-
erty rights. The government also has to protect those rights by the creation
of a justice system, a police force and even an army.224 A second broad
category of governmental tasks is the creation of institutional arrangements
that promote the efficiency of the free market. Some of the well known
tasks in this area are anti-trust legislation and natural monopoly controls,
credit and bank regulations, promotion of transparency by the mandatory
request of information on price and product content and more recently the
improvement of customs.225 A third broad category of governmental tasks
is the development of human capital in the form of support and regulation

223
See chapter 5 where I defend the first three categories of governmental tasks and call
them merit goods.
224
I rely on Adam Smith for arguments to defend the role of the government in the defense
of property rights. I enlarge that tasks to the need for continuously to specify property
rights in a changing economic and cultural environment, as in the current debate about in-
tellectual property rights (Ver Eecke 2003).
225
For the defense of this category of governmental tasks I rely on a group of economists,
sometimes referred to as neo-liberals, particularly in the German literature. I make use of
the writings of Walter Eucken, Friedrich Hayek and Henry Simons. See chapter 5 on merit
goods in this book. For a summary of the argument for the great importance of improving
customs, see: De Wulf and Sokol, IX.
 IV. Social Question and Other Problems Arising from a Free Market? 215

of education and mental health.226 A fourth broad category of governmen-

tal tasks deals with business cycles and their negative impact on economic
growth and human well-being.227 A fifth broad category is the creation of
all kinds of social welfare measure.228 A sixth broad category is the crea-
tion of a system promoting and providing health care.229 A seventh broad
category are the measures which promote a well functioning social con-
tract particularly in societies with a very diverse population.230 An eight
category consists of those measures which promote transparency in the
economic domain and thus help prevent corruption.231 A ninth category
consists of wise investment decisions and strategic planning.232 The tenth
category is the protection of the environment. The eleventh and last cate-
gory consists in measures protecting the cultural heritage.233 Of course,

226
For an interesting illustration of the connection between education and economic pro-
gress in Finland as reported in the Washington Post read the following claim: “Superb
schools symbolize the modern transformation of Finland, a poor and agrarian nation half a
century ago, and today one of the world's most prosperous, modern and adaptable coun-
tries” (Kaiser & Perkins).
227
For the defense of this category I rely on the theories of John Maynard Keynes (Ver
Eecke 1975 b).
228
Musgrave introduced the concept of merit good in order to have a conceptual home for
such redistributive measures as free education, free or subsidized health-care, free school
lunches, or lost-cost housing (Musgrave 1957, 1959). In a OECD publication on social in-
dicators we find a much more comprehensive list of social welfare measures (OECD 1982).
229
Musgrave gave as one of his early examples of merit goods: free health measures (1959,
13).
230
I became aware of the importance of this category after studying the economic miracle
of Singapore. Its economic growth was promoted by removing the growth threatening phe-
nomenon of civil unrest between the Malay minority and the Chinese majority (The official
policy can be found at Singapore HDB InfoWEB (the official Website for Housing Policy).
Mark Hong, a Singapore official, presents a short summary (2000). A discussion of the pol-
icy can be found in: Ooi et al., Chih, and Tan).
The lack of economic growth in the Democratic Republic of Congo is caused, among
others, by the many areas of civil unrest in that country. After the riots in Los Angeles, the
United States implemented several measures to diminish the tensions in the inner cities with
the African American minority (“Los Angeles riot still echoes a decade later,”
http://archives.cnn.com/2002/US/04/28/la.riot.anniversary/index.html).
231
The World Bank has “identified corruption as among the greatest obstacles to economic
and social development”
http://web.worldbank.org/wbsite/external/topics/extpublicsectorandgovernance/extanticorru
ption.
232
This category is present in classic economic theory under the name of “infant industry
protection.” A modern nation needs to do more than think about wise decisions in the se-
lection of infant industries it wants to protect. For a study on how the economic success of
a nation (Singapore) depended upon wise investment decisions and wise strategic planning
see: Ghesquiere 2007.
233
Even though this category of merit goods is economically less crucial, Musgrave, to-
wards the end of his life, explicitly mentioned this category (1987, 452).
216 9. The Role of Religion and Civil Society

these governmental tasks can be done more or less intelligently and can
contribute to increased or diminished efficiency.

c. Neither Government nor Pure Market: Creating Space for

Community Governance

Economic theory includes a specialized domain called the theory of “mar-

ket failures.” The theory of market failures seems to open the door for le-
gitimate governmental functions. In reaction to this conclusion a group of
economists, specifically economists connected with the theory of public
choice, have argued that it might be true that the market cannot guarantee,
in certain circumstances, Pareto optimality, but in many cases the alterna-
tive of government controlled economic activity results in ever greater in-
efficiencies. Is there a way out when neither the free market nor the gov-
ernment can handle activities in an economically efficient manner? The
answer requires the betting on social capital or letting community govern-
ance play a role.234
A number of studies have shown that communities can solve problems
more efficiently than the market or the government can. Residents of
some neighborhoods can “speak sternly to youngsters skipping school,
creating a disturbance, or decorating walls with graffiti” (Bowles and
Gintis, F421). Fishermen can pool their shrimp boats and their knowledge
in order to share the risks of trying new fishing grounds and educate all
with the best and latest techniques (Ibid., F422). Co-operative ownership
of a plywood factory can contribute to a higher level of work dedication, a

234
Social capital and community governance are not identical, but they are intimately con-
nected. Social capital refers to a certain number of virtues possessed by some people.
When these virtues facilitate economic interactions they can be compared to other skills
which improve economic productivity. Investment in computer skills and organizational
skills is justified economically on the same ground as investment in physical capital. An
economist looks where the marginal utility of a dollar of investment is the greatest regard-
less of whether it is in physical assets or human skills. Hence the introduction of the term:
human capital. However, economic productivity can be increased both by skills and virtues.
In as much as both are factors which are important for economic productivity, both deserve
the name of human capital. Among the virtues normally assumed under such an under-
standing of human capital are: “trust, concern for one’s associates, a willingness to live by
the norms of one’s community and to punish those who do not” (Bowles and Gintis, F419).
However, these virtues are virtues about how people interact with each other. This form of
human capital is only productive when interaction of people is a crucial factor in economic
performance. Furthermore, these virtues come more or less alive depending upon the way
people are allowed or succeed in interacting. To capture the fact that it is virtues as they are
allowed to play in human interaction patterns some authors introduce a new concept: com-
munity governance. In it these virtues are expected to play an important role (Bowles and
Gintis, F420).
 IV. Social Question and Other Problems Arising from a Free Market? 217

lesser need for supervision and a willingness to share the burdens of a re-
cession as opposed to fire some workers and thus create unemployment
(Ibid.). In these three cases, there was a market failure because economic
efficiency depended upon some public good which the market could not
and is known not to be able to provide efficiently. In these three cases too
the government, represented by judges, police, or government bureaucrats,
did not have the information nor a readily available method to deal with
the problems. Who are the youths that need to be punished and how do
they need to be punished? What new fishing grounds should be tried and
what techniques should be taught? And, how much should be paid to en-
tice the fishers to act as such? Finally, government intervention is not
known to improve work dedication as co-operatives ostensibly do. Fur-
thermore, when the government would like to provide the equivalent of the
insurance schemes originally provided by the co-operative ventures of
fishermen or the co-operative ownership of plywood workers, the theory
argues and the evidence shows that there is a problem of moral hazard.
Once insured, the motive to work is diminished.
The domain of successful community governance deals with the fact
that “the nature of social interactions of the goods and services being
transacted makes contracting highly incomplete or costly” (Ibid., F424).
Effective community governance has two great advantages over the market
and the government as a whole. Its members have a lot of pertinent and
detailed information. Its members make effective usage of a broad range
of motivations not normally considered in economic theory such as: trust,
solidarity, reciprocity, reputation, personal pride, respect, vengeance, and
retribution (Ibid.).
There are at least two kinds of failures associated with community gov-
ernance. The first is that community governance, by its very nature, is lim-
ited in scope. Furthermore, it concerns a limitation in principle: both the
market and the government develop ways to deal with strangers and can
thus expand their range almost infinitely. Community governance relies
upon close relations for both its information and its enforcement success .
The second limitation is that community governance tends to promote ho-
mogeneous membership leading to parochialism with some very negative
consequences. It creates an insider-outsider mentality or an “us” versus
“them” strategy. When community creation is based upon race or ethnic-
ity, it can produce hostility. When it is based on wealth and power, it can
lead to exploitation of the poor and the powerless (Ibid., F427–8).
The importance of human capital and community governance was
stressed by Joseph Stiglitz (Stiglitz 1999), when he tried to understand a
graph of the 1997 GDP as a percentage of the 1989 GDP of the countries
that belonged to the Soviet Union and the communist countries of Eastern
218 9. The Role of Religion and Civil Society

Europe. Only Poland produced more in 1997 than in 1989 – all of the rest
had significantly lower GDPs. These countries with lower GDPs were the
ones that followed the advice of Western economists, from the IMF in par-
ticular. Stiglitz points out that countries that did not follow that advice,
such as China, India and to some extend Malaysia, often had double digit
growth numbers over the same period of time. Stiglitz points out that the
Gini coefficient of inequality in Russia during that same period doubled.
Stiglitz then asks what do Western economists misunderstand about the
economy. As I see it, Stiglitz argues that Western economists do not fully
understand the functions of institutions and legal regulations that are nec-
essary for an economy to function efficiently and justly. Thus, Stiglitz fo-
cuses on the need for tax collection so that the government can perform its
many functions. He also points to the need for intelligent bankruptcy laws,
an efficient banking system and measures that can prevent corruption.235
Related to our current argument, Stiglitz also argues that Western advis-
ers underestimated the function of social capital and community govern-
ance in the creation of flourishing economies. Thus he points out that a
market economy must accept the reality of what Schumpeter called “crea-
tive destruction.” In order to have an efficient economy, inefficient enter-
prises must be allowed to disappear. However, so argues Stiglitz, for
bankruptcy to contribute to a more efficient economy, it is necessary that
other more efficient enterprises are created than the dying inefficient ones.
This requires entrepreneurial talent.
Stiglitz agrees that there was plenty of entrepreneurial talent in the For-
mer Soviet Union, but argues that the social capital in entrepreneurs was
largely inapplicable for creating efficient market oriented firms. Entrepre-
neurs in the Former Soviet Union, so he writes, “had acquired skills in
evading government regulations, in arbitraging away some of the ineffi-
ciencies in government regulations for private profit, and in operating at
the interstices between the legal and illegal world” (Stiglitz 1999, 7).
Stiglitz therefore concludes that there was a deficiency in market oriented
entrepreneurial talent.
Stiglitz further argues that the transformation of the FSU created the ad-
ditional problem of undoing the “social glue” that is necessary for any so-
ciety and economy to work. He sees the social institutions, the trust in
them, and the accepted norms of doing daily tasks as part of this social
glue. (Ibid., 8). Stiglitz argues that a better route for economic transforma-
tion in the FSU would have been to build on existing social capital as it ex-
ists everywhere such as in local workplaces, local township governments,

235
For a more detailed analysis of the ides of Stiglitz, see Chapter 10, Section III in this
book.
 IV. Social Question and Other Problems Arising from a Free Market? 219

unions, schools, colleges, co-operatives, mutual aid associations, guilds,

professional associations, churches, veterans’ associations, clubs, and ex-
tended family groups (Ibid., 9). Stiglitz further argues that reform by
means of privatization without a proper institutional framework and a lack
of proper social capital could have gone another and better route, the one
of planned decentralization. He points to the fact that by 1992 some ten
thousand enterprises in the Soviet Union had become “leasehold enter-
prises” (Ibid., 25). Leasehold enterprises were work collectives that could
“lease enterprises from the state and run them as more or less private enti-
ties, according to the market logic” (Ibid., 24). Such decentralized enter-
prises had or were acquiring at the time the social capital necessary for
running efficient businesses (Ibid., 18, 25). We thus see in Stiglitz’s
analysis of the failures evident in the attempts to transform the command
economies of the FSU into a market economies a confirmation of the claim
that, not withstanding neo-classical economic theory, it is important to pay
attention to human capital and local or community governance.

C. Putting the Arguments Together

If the communist elite in accepting a transition to the free market remains

concerned with the social question and thus the alleviation of poverty, it
will have to recognize that the state has less power than when it controlled
the economy almost completely. I have argued that the state still has many
important functions to perform. But, since the state is not so powerful any
more, it will have to legitimatize intermediate institutions and rely on them
for support for its tasks. For its different functions it may have to rely on
the association of economists, of lawyers, and of engineers. I have argued
that for the specific concern of alleviating poverty a communist state intro-
ducing free market principles should legitimize a natural ally for this con-
cern: religion.
I have also argued that concern for alleviating poverty must include
concern for economic efficiency. I have argued that there are a number of
oversight functions, institutional obligations and regulatory duties that the
government must perform in order to create an efficient economy. I have
also argued that an efficient economic system requires the promotion and
protection of social capital and the possibility of using community govern-
ance. There I discovered and argued for non-self-interest motives such as
trust, acceptance of norms, and the dedication to moral commitments. In-
terestingly enough, some authors have pointed out that community govern-
ance works better in societies that are not suffering from extreme inequal-
ity ((Bowles and Gintis, F434). Put more positively, several authors tie the
220 9. The Role of Religion and Civil Society

economic success of the East Asian countries to the fact that they created a
commitment to share broadly the benefits of economic growth (Campos
and Root, 177) which in turn made the co-operative spirit possible (Sen
1993, 27–28). Concern for alleviating poverty can thus go hand in hand
with economic growth.

Conclusion

For a society moving away from a command economy, I see a basic chal-
lenge. It must introduce the principle of subjectivity in societal organiza-
tions. That principle has its privileges, but it also has its duties. It still re-
quires organizations. For it to work effectively, there are some limited but
important functions that must be performed by the state. The state should
be able to rely on intermediate institutions to perform those multiple func-
tions with less absolute power than before. But in order to be able to rely
on intermediate institutions, the state will have to tolerate and promote
them.
By concentrating my argument on the assumed interest of the commu-
nist elite in the social question – i.e., alleviating poverty – I was able to
rely on my Hegelian understanding of an ethical free market. Such an
ethical free market necessarily has a redistributive aspect. However, the
redistributive aspect must go together with effective efficiency. The latter
demands not only the introduction of the free market principle, but also the
assumption by the government of a number of institutional and regulatory
functions. In addition it requires giving systematic space for non-egoistic
motives such as trust and co-operation and for appropriate community
governance opportunities.236

236In this chapter I did not address the question of foreign direct investment
which plays a big role in the economic growth in both Singapore and China.
 Section III

Philosophy of Economics and Catholic

Social Thought
10. Overlapping Ideas: Catholic Social Thought
and Recent Nobel Laureates in Economics

Abstract

Economic doctrine is interested in the efficient use of resources for

production and consumption. It often uses mathematical and geo-
metric arguments in order to speak authoritatively. Catholic Social
Thought and most religious ethics are more directly concerned with
what the economy does to people, particularly to the poor. These
traditions use the message of sacred texts or moral reasoning to
make authoritative demands. I will demonstrate that, notwithstand-
ing their different methods and interests, there are important areas
where these different discourses about the economy acknowledge
each other’s authority. I will begin by emphasizing the obvious dif-
ference between these two discourses about the economy and end by
pointing to multiple forms of overlapping concerns.

I. Multiple Authorities in Economics

A. The Authority of Economic Theory

As economics is the study of the efficient use of scarce resources, it is a

science which cannot avoid making recommendations. Economics is a
science with prescriptive goals.237 The development of economic theory

237
Of course, economists do a lot of descriptive work. They provide reports on price lev-
els. They also provide reports on quantities produced in many sectors of the economy, such
as the agricultural sector, the service sector, the health sector, and so on. Economists also
provide reports that have implicit or explicit recommendations. Thus, a report on the mort-
gage interest rates charged by different banks leads to the recommendation that taking the
lowest interest rate – other things being equal – is the only efficient course of action. For
224 10. Catholic Social Thought and Recent Nobel Laureates in Economics

is the attempt to make such recommendations authoritative. Economic

theory has for that purpose developed mathematical and geometric models.
In order to build mathematical or geometric models, economists need to
specify their model. They need to make a number of assumptions, and
these assumptions limit the applicability of conclusions drawn from the
model to those parts of the reality that fit the assumptions. Economists in-
terpret the idea of “fit” as “fit reasonably well for the purpose at hand.”
The application of an economic model to a concrete case thus demands
that the economist judge that the reality is sufficiently close to the model
so that the model’s conclusions apply to the reality under consideration.
Such judgments can vary from claims that the assumptions of the model
are generally acceptable (apples, bananas, and pears are presented in the
markets in units that are close enough to the assumption of the theory that
units of production and sale are infinitely divisible), to claims that the as-
sumptions are generally not accepted (distance and time separating pro-
ducer from ultimate consumer do matter even if the model has no space
and time variable). The question then arises: who has the authority to
make the decision that the assumptions of the model are close enough to
the reality to accept the recommendations of the model in a concrete situa-
tion?
To illustrate the difficulties involved, recall that there is an economic
correlation called the “Phillips curve” that claims that there is a significant
relation between the percentage change in money wages and the level of
unemployment (increase the money wages and unemployment can be ex-
pected to increase). According to the standard interpretation of the model,
if one judges the price elasticity of demand for labor to have a value
greater than one, then it follows that an increase in the minimum wage will
result not only in an increase in unemployment but also in a decrease of the
total wage income of the affected workers. A policy to increase the mini-
mum wage under such circumstances would therefore have two undesir-
able consequences. However, were one to judge that in the particular case
the price elasticity of the demand for labor is zero, then economic reason-
ing tells us that no one would lose a job as a consequence of the policy and
that all workers involved would earn more.238 The need for a judgment
about the applicability of economic models sets a limit to the absolute au-
thority of economic models: Economic models have absolute authority

an illustration of the descriptive work done by economists see any publication of the US
Census Bureau.
238
For a recent article questioning the general validity of the Phillips curve and the proposi-
tion that minimum wage legislation necessarily increases unemployment, see Prasch &
Sheth 1999.
 I. Multiple Authorities in Economics 225

only for the conclusions of the model, not for the applicability of the con-
clusions to the reality.
I will now show that economic theory demonstrates that there are cru-
cial limitations to its own authority not just in the application of models,
but in the construction and interpretation of models. I take as the focus of
my argument an influential paper by Francis Bator, wherein he neatly
summarizes the theory of welfare economics: “The simple analytics of
welfare maximization” (Bator 1957). As the title suggests, Bator makes a
number of recommendations concerning how a society could maximize its
welfare. More than two thousand years before Bator, Plato had already
considered maximization of welfare to be an integral part of justice. In-
deed, any interference with the possibility of producing the maximum wel-
fare in society results in there being less resources available within society
to share or to distribute. Some people could therefore receive less than
they could have received if welfare maximization had not been impeded.
Plato considered such interference a form of injustice. Bator’s model must
therefore be given ethical authority in matters of economics.
Bator’s model makes a number of simplifying assumptions – e.g., Bator
reduces his economy to two persons, two input factors (land and labor),
and two products (apples and nuts). Bator’s model also includes a number
of less obvious assumptions – explained in a footnote239 – such as the idea
that the two inputs are perfectly divisible, homogeneous, and inelastically
supplied. Or, in other words, he assumes that all production functions
have a “smooth curvature...[and] neoclassical generalized diminishing re-
turns obtain in all but one dimension – returns to scale are assumed [to be]
constant” (Bator 23).240
By means of his model, Bator is able to demonstrate that three rules
must be obeyed in order to maximize social welfare. One rule relates to

239
The assumption of smooth curvature implies that all inputs and outputs are infinitely di-
visible. Thus the model has the option of using land in increments of one acre, half an acre,
a tenth of an acre, a square foot, half a square foot, etc. The model also has the option of
using labor in increments of one laborer, half a laborer, one month’s work, one week’s
work, one day’s work, etc. The model also assumes that apples can be produced in incre-
ments of, say, one hundred pounds, ten pounds, one pound, half a pound, one apple – and
here the unrealistic dimension of the assumption emerges – half an apple, one fourth of an
apple, etc. One could therefore describe physically impossible situations where all of the
land is turned over to the production of nuts except for one square inch upon which part of
an apple tree is supposed to grow and which is supposed to produce some minute fraction
of an apple. The neoclassical assumption of generalized diminishing returns means that for
a fixed amount of one production factor, say land, the use of a third laborer will lead to a
greater production of apples than the use of two laborers, but that the increase in production
due to the third laborer’s work is postulated to be less than the previous production increase
made possible by the hiring of the second laborer.
240
For an enumeration of these and other assumptions see Bator 23.
226 10. Catholic Social Thought and Recent Nobel Laureates in Economics

production, another rule relates to consumption, and a third rule relates to

the co-ordination of production and consumption. I will summarize Ba-
tor’s arguments for each of these three rules below and state the appropri-
ate rule at the end of each argument.241
Let us start by analyzing the production rule. In Bator’s model there are
two products: apples and nuts. The only resources available to produce
these are land and labor. No third factor, say fertilizer, can be used. If the
model calls for the production of a thousand pounds of apples and further
assigns 100 acres for apple production, then a good farmer will know ex-
actly how many hours of labor are required to produce the desired quantity
of apples. Bator captures the knowledge of the farmer by referring to a
production function, that stipulates what inputs are required for given out-
puts under current technology. Having fixed the input and output levels
for the production of apples, all remaining resources of land and labor are
dedicated to the production of nuts. If some quantity of land or labor is not
used when it could be used productively, then the economy does not pro-
duce at its possible maximum.242 However, even if all land and all labor is
used most production decisions would still be inefficient.243

241
Advice to non-economists: the validity of these three rules is what the reader needs to
understand or accept. I spend the most time with the argument for the first rule because
there is a great similarity in the arguments for the three rules.
242
If using one more laborer to pick apples would mean that the other laborers are hindered
more than the last laborer contributes to production then it may be efficient to leave that la-
borer unemployed.
243
The line called “Pareto Efficient Production Line” represents the only points that are ef-
ficient. Clearly, most production decisions can lead to inefficient results.
 I. Multiple Authorities in Economics 227

Let us take the simple example of a model that devotes half of 10 acres
land to nuts, the remaining 5 acres to growing apples, and assigns all
workers (10) to picking nuts (Point A). Obviously the model would pro-
duce zero apples and some quantity (let us say 10,000) of nuts. An econo-
mist would suggest that one worker be reassigned from picking nuts to
picking apples. Having lost one worker in nut production overall nut pro-
duction would decline unless additional land (say 1/2 acre) be dedicated to
nuts. As a consequence of the economist’s advice nut production lost one
worker and gained 1/2 acre of land (Point B). This judicious change in in-
put mix (more of one input; less of the other) leaves the nut production at
the original level. However, apple production increases drastically from
zero to, say, 220 apples. This increase comes about because apple produc-
tion is assigned a laborer for the first time. Losing 1/2 acre of land for ap-
ple production is more than compensated for by the gain of one laborer.
The economist again advices that we shift one of the nine nut laborers
away from nut production to apple production and recoup the loss in nut
production with land – say, that the total amount of rededicated land is
228 10. Catholic Social Thought and Recent Nobel Laureates in Economics

brought to .55acres – so that nut production stays the same (Point C). Ap-
ple production again increases, with a total of, say, 230 apples being pro-
duced. The economist will offer the same advice of decreasing laborers
working in nut production, reassigning them to apple production, and tak-
ing just enough land away from apple production to maintain current levels
of nut production. As long as the nut production stays the same and the
shift in input mix leads to an increase in apple production, the previous
mix is considered to be inefficient. However, if a small shift in input mix
leads to a decrease in apple production while nut production stays the same
then we know that the previous mix was more efficient. Efficient produc-
tion is achieved when changing minimally the mix of inputs leaves the
output of both products unchanged (Point D). Technically speaking, effi-
ciency is reached when the rate at which one input must be substituted for
another to keep production levels unchanged is the same for both products.
In the present model this occurs when the farmer produces 10,000 nuts and
235 apples because for the production of both nuts and apples .57 acres
need to be added to compensate for losing one laborer or vice versa. This
is called the marginal rate of substitution of production factors.
In our example we started out by giving half of the land (5 acres) and all
of the workers to the production of nuts. We could now start our reasoning
all over again, reserving some number of acres (e.g., 6, 7, 8, 2, 3, or 4
acres) to the production of nuts and then work out, for each different start-
ing point, what amount of labor is necessary for maintaining the original
level of nut production. Each different starting position leads to a different
efficient result. The points of efficient input mix for production is called
the Pareto efficient production possibility curve. In such an efficient pro-
duction point the model shows that more production of one output neces-
sarily leads to diminished production of the other output. The miracle of
efficiency by which one produces, with the same inputs, more of one out-
put without diminishing the other output is not possible any more at an ef-
ficient production point.
If producers are profit motivated and operate in a perfectly competitive
environment, it is believed that the producers are automatically motivated
to look for such efficient production solutions.
The second rule relates to consumption choices. Given a fixed amount
of consumable goods produced by the production process, the question
arises as to how the consumer goods should be divided between the two
consumers so as to maximize their satisfaction. Again, we can start by
giving half of one consumption product – say, nuts – to each of the con-
sumers. All of the apples are then given all to Jane (consumer X); John
(consumer Y) receives none.
 I. Multiple Authorities in Economics 229

As economists need to compare things quantitatively – even if only or-

dinally – they need a unit of consumer satisfaction. In an imaginative
move they call the unit of consumer satisfaction a “util.” When comparing
quantities of utils – say, 200 utils to 400 utils – the rule is that more utils is
better. However, while 400 utils is definitely better than 200 utils, one is
not allowed to draw the further inference that 400 utils is twice as good as
200 utils. Utils are calculated in ordinal numbers, not in cardinal numbers.
Moreover, quantities of utils are not intersubjectively comparable. Thus, if
X has 200 utils and Y 400, economists do not allow one to say that Y is
better off than X.
Let us now assume that Jane has a satisfaction level of 10,000 utils and
John a satisfaction level of 2,000. Suppose John receives 100 nuts from
Jane, and Jane needs in return a certain number of apples – say, one – to
maintain her present satisfaction level. In other words, Jane is effectively
declaring that she is equally satisfied by a basket of 5,000 nuts and 237 ap-
ples and a basket of 4,900 nuts and 236 apples. If John now declares that
having one apple now, when he had none before, makes him feel better
even though he has to give up 100 nuts, then we have moved to a situation
where Jane feels equally good and John feels better. Thus trading be-
tween Jane and John improved the situation of John and did not worsen the
situation of Jane. The after-trade situation may be characterized as more
efficient. So long as a trade of one consumer good for another consumer
good leaves one person equally well off and improves the well being of the
other consumer the pre-trade situation was not optimal. The trade situation
becomes optimal when no consumer can be made better without making
another one worse off. This is because for both consumers the same
amount of nuts is required to make them feel equally well off after having
given up one apple. The number of nuts required to substitute for one ap-
ple is called the marginal (i.e., at the margin) rate of substitution in con-
sumption.
The original pre-trade situation gave 5,000 nuts to each consumer. We
now could give Jane 4,000; 3,000; 2,000; or 6,000; 7,000; 8,000; 9,000
or any amount of nuts in between and start the search for the optimal trade
result. Each search would give one point on what is called the utility-
possibility frontier. Points on the utility-possibility frontier can be reached
only if the consumers benefit in their society from efficient production
(i.e., if production has reached the production possibility frontier as de-
fined above).
If consumers are self-interested utility maximizers and no external ef-
fects are present (Veblen effect,244 envy) then it is assumed that private
244
Thornstein Veblen is famous for his description of the phenomenon of conspicuous con-
sumption. This leads to a phenomenon known to happen in up-scale stores: a product does
230 10. Catholic Social Thought and Recent Nobel Laureates in Economics

property combined with freedom in consumption and in trade will auto-

matically result in society reaching the utility frontier.
The third rule concerns the co-ordination of production and consump-
tion. Production can be efficient at many points. It is possible to achieve
efficient results with the production of no apples and all nuts or with all
apples and no nuts and for all the maximally feasible combinations in be-
tween.
Trading consumption goods for maximum satisfaction too can be effi-
cient at many points depending upon the starting point. If Jane starts off
possessing almost all resources the efficient trade outcome would be that
Jane ends up with almost all of both nuts and apples. If John starts off
possessing almost everything then efficient trade would end up with him
having almost all of both apples and nuts. Many different positions in be-
tween are likewise possible.
To each efficient production outcome there corresponds an infinite
number of efficient trade outcomes. As there are an infinite amount of ef-
ficient production outcomes possible the number of possible efficient trade
outcomes is thus infinity times infinity.
How does economic theory find a rule that selects an efficient coordina-
tion? The solution lies in the following observation. At each efficient pro-
duction solution the producer has the option of giving up the input factors
required for producing one product – say, one apple – and of rededicating
those freed up resources to the production of all the nuts that can be pro-
duced efficiently. The number of nuts that can be produced by giving up
one apple is called the (marginal) rate of transformation of apples in nuts.
It is this rate which is crucial for co-ordinating production and consump-
tion. Efficient co-ordination of production and consumption requires that
the (marginal) rate of transformation in production be equal to the (mar-
ginal) rate of substitution in consumption. Indeed, if this equivalence did
not hold, one would encounter a situation in which consumers feel that
they are indifferent to either one apple or 90 nuts and in which producers
would be able to give up producing one apple and produce instead 95 nuts.
In this case production and consumption are not efficiently co-ordinated
even though both production and consumer trade might be efficient. Over-
all satisfaction would be increased in our example by asking consumers to
give up one apple and redeploying the freed-up resources instead to pro-

not sell well at a particular price but sells much better when the price is doubled. Veblen
explains this phenomenon by pointing out that a conspicuous consumer does not so much
enjoy the intrinsic qualities of a good as the knowledge that the good is expensive. The
logic behind the phenomenon seems to be that the conspicuous consumer feels the more
important the more expensive the good is that he or she is consuming. Goods that sell more
when the price is increased are said to be subject to the Veblen effect (Veblen 1934).
 I. Multiple Authorities in Economics 231

duce 95 nuts. Ninety nuts would be sufficient to make consumers feel

equally well off. Five nuts would remain to make one or both consumers
better off. Efficient co-ordination requires that the (marginal) rate of trans-
formation in production be equal to the (marginal) rate of substitution in
consumption. For each efficient production point there is an efficient trade
point where that equality is true. The sum of all efficiently co-ordinated
production-consumption points gives rise to the grand utility-possibility
frontier. No trade or change in production choices could make it possible
for one consumer to be better off without making another consumer worse
off.
In conclusion, economic theory is able to show that by varying produc-
tion and consumption decisions and by co-ordinating production with con-
sumption, the economy can improve the satisfaction of some consumers
without hurting other consumers. This is considered to be an unambiguous
improvement in economic efficiency.

One more decision has to be made. Bator’s economic model tries to

give its authoritative approval to a concrete economic reality. Bator
clearly demonstrates the limits of economic authority, when confronted
with that last necessary decision. The grand-utility possibility frontier is a
line showing the joint welfare of two consumers. Examples of points on
232 10. Catholic Social Thought and Recent Nobel Laureates in Economics

that line are Jane experiences 50,000 utils (Jane feels a utility level called
50,000 utils) and John experiences 60,000 utils (point B). Other possibili-
ties are Jane at 8,000 and John at 110,000 (point A); Jane at 90,000 and
John at 9,000 (point C); there are an infinite number of other possibilities,
i.e., all the points on the grand-utility possibility frontier. To decide that
the economy must result in situation A would give preference to John –
say, an entrepreneur or a capitalist – whereas deciding in favor of B would
be favoring a more egalitarian society and deciding in favor of C would be
favoring Jane – say, a worker. Such decisions demand that one evaluate
the worthiness of the satisfaction of different consumers. Economic theory
professes that such an evaluation is not part of its job description. In order
to complete its analysis, economic theory assumes that it will be furnished
with what it calls a social welfare function by philosophers, politicians, or
other people in charge of normatively evaluating human affairs.
In the model discussed, production decisions, consumption decisions,
and co-ordination of production and consumption are to be guided by eco-
nomic rationality. The determination of a welfare function must come
from outside the domain that is subject to economic authority.
The implementation of the welfare function can be done by specifying
the original endowments. There are only two original endowments or in-
puts: land and labor. One way to influence the outcome of the grand-
utility possibility frontier is to specify the ownership of land (e.g., by land
reform, inheritance taxes). If one were to broaden the model one could
talk about the ownership of all assets (i.e., property rights in general). The
other way to influence the outcome is to see what can be done with labor.
Bator’s model assumes that labor is fixed and homogeneous. But, clearly
it is not. There are disabled persons. Furthermore, the productive value of
labor can be greatly increased by training and education.
A different approach to influence the outcome requires the modification
of the relative buying power of labor and land (assets). This could be
done, for instance, through minimum wage laws, taxes on luxury goods,
and differential taxes on labor and assets.
The Bator model gives us enough information to start discussing some
disputes of authority about economic matters:
1.) Ironically, the Bator model seems to justify a Marxist line of think-
ing which argues that property rights are one of the most important factors
determining justice in a modern economy. However, Ludwig von Mises
had already in 1920 presented an argument for why the socialization of the
means of production is an economically bad strategy. Von Mises argued
that a central authority could not gather all the information necessary to
create an efficient economy requiring the satisfaction of the three rules
found in the Bator model. Furthermore, a central authority would not have
 I. Multiple Authorities in Economics 233

the motivation (either a profit motive or self-satisfaction) to implement the

three rules even if it had the necessary information (Mises 1975). This
suggests that other approaches to the problem of property rights, as they
relate to issues of justice, need to be considered.
2.) Bator assumes that consumption choices are made efficiently. Ac-
tions that thwart efficient consumption choices thus become morally rele-
vant because they hinder the morally desirable goal of economic effi-
ciency. (Examples would include deceptive advertising and deceptive sales
practices (including deceptive privatization schemes)). The same can be
said of situations that make efficient consumer choices difficult (e.g., lack
of easily-available consumer information). Equally morally relevant are
irrational consumption choices (e.g., driving when drunk). These are three
kinds of events or situations that are to be avoided in order to reach the
economically and morally desired efficiency. Some ethical theorists (liber-
tarians) argue that it is morally unacceptable to violate property rights in
order to achieve greater efficiency (Nozick 1974).
3.) Production is assumed to be done competitively and motivated by
the desire for profit. But what is an economist to advise us to do in situa-
tions where the profit motive dictates anti-competitive moves? This raises
the possibility of economic and moral justifications of anti-trust legislation
and legislation about fair-trade practices. Again, some theorists (econo-
mists and ethicists) argue that state intervention in such matters is either
not wise or not permissible.
4.) The economy is more complex than Bator’s model suggests.245
There are all kind of transaction costs both in production and in consump-
tion. A proper banking system is one important institutional arrangement
to diminish transactions costs. However, pointing towards the need for a
banking system introduces the idea of implementing some appropriate
governmental regulation of economic institutions.
Let us conclude this section by noting that economic reasoning un-
avoidably gets entangled in moral questions. These moral questions
emerge from within economic reasoning itself and are in no way foreign to
it.

245
See below in the section on Stiglitz.
234 10. Catholic Social Thought and Recent Nobel Laureates in Economics

B. Religious Authority and Economics

1. U.S. Bishops’ Pastoral Justice for All

a. Non-Economic Authority in Economic Matters

This document appeals to two forms of authority: the biblical vision and
the natural law tradition.
From the biblical tradition the Pastoral derives the claim that “no di-
mension of human life lies beyond God’s care and concern” (# 31). As
men and women are made in God’s image and as the creation belongs to
God, the gift of creation belongs to all men and women (# 34). Being
made in God’s image makes all human beings free, responsible for co-
creation and worthy of sharing in the fruits of the earth’s gifts (# 36). Hu-
man beings are therefore asked to work productively and to do so in social
co-ordination. The vulnerable and the poor are said to deserve special at-
tention.
Turning to natural law, the Pastoral develops the concept of justice, dis-
tinguishing between commutative, distributive, and social justice and
thereby stressing fairness in transactions, compassion for the poor. Fi-
nally, the Pastoral points to the need for institutional arrangements that
promote the participation of all in economic life.

b. The Pastoral Letter Makes Use of Its Authority

The Pastoral letter makes use of its special authority in economic matters
with sharp rhetorical language. Thus we find the following statements
(emphasis mine):
1.) “Harsh poverty plagues our country despite its great wealth” (# 16)
2.) “That so many people are poor in a nation as rich as ours is a social
and moral scandal that we cannot ignore” (# 16).
3.) “Discrimination in job opportunities or income levels on the basis of
race, sex or other arbitrary standards can never be justified. It is a scandal
that such discrimination continues in the United States today” (# 73).
4.) “Among black teenagers unemployment reaches the scandalous rate
of more than one in three” (# 140).
5.) “It is patently unjust to deny workers any role in shaping the out-
come of these difficult choices” (# 303).
 I. Multiple Authorities in Economics 235

c. The Pastoral Letter Limits Its Own Authority

There are several indications that the authors of the Pastoral letter accept
limitations to their moral authority.
1.) The Pastoral letter explicitly acknowledges the authority of technical
economic thinking in the following text: “This document is not a technical
blueprint for economic reform. Rather, it is an attempt to foster a serious
moral analysis leading to a more just economy” (133). Does this mean that
a technical economic model has also authority? Which authority has prior-
ity? Over what issues?
2.) The Pastoral letter implies a third authority, which is neither that of
economic reasoning nor that of religious ethics, even though it might be in-
fluenced by both. This third authority is what Hegel called “Geist” (spirit)
and is cultural and political in nature. We find the following text: “The
first step in such an effort is the development of a new cultural consensus
that the basic economic conditions of human welfare are essential to hu-
man dignity and are due persons by right” (# 83).
3.) When analyzing concrete economic problems with a view toward
assessing their moral relevance, the Pastoral letter often mixes two kinds of
arguments. The letter clearly advances moral or meritorious goals. How-
ever, it also uses public good arguments which are economic arguments
based on rational self-interest. And, public goods arguments also entail
arguments for limiting the provision of moral goals up to the amount justi-
fied by rational self-interest.

2. John Paul II and Centesimus Annus

This document is more favorable to the free market than most other official
Catholic documents. Still, John Paul II argues that the economic domain
needs to be subordinated to the political domain. I interpret John Paul II as
assigning three quite different functions to the state. First, he assigns to
the state a necessary structuring function. This structuring function is evi-
dent when he writes:

Economic activity, especially the activity of a market economy, cannot be

conducted in an institutional, juridical or political vacuum. On the contrary,
it presupposes sure guarantees of individual freedom and private property,
as well as a stable currency and efficient public services. (# 48)

Second, John Paul II assigns the state a role in helping the economy
reach full employment. This role is described when he argues for the more
traditional Catholic – and Keynesian – position that “the state has a duty to
236 10. Catholic Social Thought and Recent Nobel Laureates in Economics

sustain business activities by creating conditions which will ensure job op-
portunities, by stimulating those activities where they are lacking or sup-
porting them in moments of crisis” (# 48).
Third, John Paul II introduces the central idea of Catholic Social
Thought – subsidiarity – which allows him to limit the authority of the
state. He draws a new application of that idea. Thus he writes:

in exceptional circumstances the State can also exercise a substitute func-

tion, when social sectors or business systems are too weak or are just getting
under way, and are not equal to the task at hand....Such supplementary in-
terventions, which are justified by urgent reasons touching the common
good, must be as brief as possible, so as to avoid removing permanently
from society and business systems the functions which are properly theirs,
and so as to avoid enlarging excessively the sphere of State intervention to
the detriment of both economic and civil freedom. (# 48)

John Paul II chooses to introduce the principle of subsidiarity when dis-

cussing the “Welfare State,” which is also called the “Social Assistance
State” (# 48). In matters of welfare John Paul II argues that the state is not
the sole agency responsible; rather, the state should only have a helping
function. Individuals and private organizations must be allowed to exer-
cise private charity (# 49). Where individuals and private organizations
fail, there the state needs to help. Thus, according to my reading of Cen-
tesimus Annus, John Paul II differentiates the nature of authority of the
state in economic matters into three different kinds. First, there are matters
that fall unconditionally under the authority of the state (property rights,
stable currency). Second, there are matters where the state is the crucial
helper for an economy which performs defectively (business cycle poli-
cies). Third, there are matters where the state has a subsidiary function.
Here, the state cannot take charge. If the state takes charge, it deprives in-
dividuals and private organizations of opportunities. Moreover, the state
performs the welfare function inefficiently, and it is unavoidable that it so
performs.
 II. Overlapping Authority 237

II. Overlapping Authority

A. Beyond the Bator Model: More Moral Options in

Economic Reasoning246

The assumption of infinite divisibility of both outputs and inputs and the
assumption that consumption excludes “external effects” means that public
goods are not conceptualized in Bator’s model (Bator 43, 44 note 44).
Samuelson addresses that problem and defined a pure public good as a
good that can be consumed by other consumers without the first consumer
losing any satisfaction (Samuelson 1954, 387). For private goods that is
not possible. If my colleague eats my sandwich, I cannot enjoy it. How-
ever, if I buy and install a light in a dark alley, my neighbor can enjoy the
safety of the light while I loose none of my own feeling of safety. When
goods are public goods, efficient provision of those goods requires in many
cases some form of collective action. Samuelson proposes that the state
ask citizens how much they would be willing to pay and asks entrepreneurs
how much they would charge. If the payment demanded by the entrepre-
neur is less than the willingness of the citizens to pay then the state should
buy the public good and use its taxation power to force the citizens to pay
for the public good. If the state does not perform this function then society
forgoes an opportunity and thus operates at less than optimal efficiency. In
other cases, individuals might come together and take joint private action
by, for instance, creating an exclusive club (e.g., for recreation).
At least three kinds of important difficulties have been discussed in the
literature with the provision of public goods.247 If the government takes
the initiative, it intends to help citizens to achieve a consumption satisfac-
tion that they might not be able to achieve on their own. The government
needs to know what the citizens want and how much they are willing to
pay. This information is required for the government to make the calculus
as to whether the citizens want the particular public good strongly enough
to warrant its provision. This information is then also used to differentially
tax the various individuals involved. A taxi driver will have more utility
from a bridge than a bicyclist and therefore can be expected to pay more
for the cost of building the bridge than the bicyclist. But, given that the

246
I am here summarizing arguments more fully developed in chapters 5 and 6 in which I
present respectively the arguments about merit and public goods.
247
For a survey of the many difficulties connected with the concept of public good see
chapter 6 of this book.
238 10. Catholic Social Thought and Recent Nobel Laureates in Economics

government will use the information about the citizens as a basis for taxa-
tion, citizens have a selfish interest in hiding (i.e., lying about) their real
interest in public goods. In the provision of public goods, there is an un-
avoidable information problem (Ibid., 389).
Again, if the public good is provided by private initiative then the ex-
clusionary practice of a club provision of public goods raises the question
of discrimination. This is clearly a domain for the moral exercise of state
authority.
Lately, a new problem has emerged. Many public goods provided by
the state are financed by general revenue. Thus, the decision to provide or
not to provide a public good is a political choice (Stretton & Orchard
1994). In the best of circumstances, one may hope that the government
makes a list of projects that are economically justified. Given a limited
budget, the government must chose which economically-justified public
goods should be provided. Will it be a new highway or improved educa-
tion? Different citizens will benefit differently from the two projects.
There will even be a distributive effect. Some public goods benefit the
lower classes more; others benefit the well-to-do more. Thus, the decision
as to which public goods deserve to be provided has both economic and
moral aspects.
Musgrave is credited with having pointed out that there is a third kind of
economic good that is neither a private good nor a public good. He calls
this third type of good a merit or demerit good (Musgrave 1959, 13–14).
Musgrave gives as examples of merit goods: subsidized low cost housing,
free hospital care for the poor, and obligatory education. He gives as ex-
amples of demerit goods: the prohibition of alcohol and tobacco consump-
tion. He defines a (de)merit good as a good that is so (de)meritorious that
the government is justified in interfering with consumer wishes by decid-
ing that the level of consumption is either too low (merit good) or too high
(demerit good). Clearly, the concept of a merit good does not respect the
consumer sovereignty tradition. Moral arguments will therefore be needed
to justify such government interventions. Musgrave finds the cases of
economic events requiring moral justification important enough to create a
special concept for them.248

248
Musgrave consistently limits the applicability of his new concept. On philosophical
grounds I argued for an expansion of the concept (Chapter 5 of this book).
 II. Overlapping Authority 239

B. Religious Documents Use (Submit to) Economic

Reasoning

Some moral documents about the economy mix public good and merit
good arguments. A merit good argument points to moral arguments as
having authority over the economy. A public good argument points to
self-interest and thus to a strictly economic argument as having authority
in economic matters. One might therefore wonder whether moral docu-
ments that employ public good arguments effectively subordinate their
moral arguments to purely economic arguments. Let us survey some ex-
amples of such mixed argumentation.
The Pastoral letter Justice for All points to “Full employment [as] the
foundation of a just economy” (# 136). The document then points to
documented losses from unemployment. “It gives rise to family quarrels,
greater consumption of alcohol, child abuse, spouse abuse, divorce and
higher rates of infant mortality” (# 141). The “strains of job loss may
drive individuals to suicide” (# 141). “Jobless people pay little or no taxes,
thus lowering the revenues for cities, states and the federal government” (#
142). “[R]ising unemployment requires greater expenditures for unem-
ployment compensation, food stamps, welfare and other assistance” (#
142). “The Federal Bureau of Prisons reports that increases in unemploy-
ment have been followed by increases in the prison population” (# 142).
The public goods argument is then summarized as follows: “we simply
cannot afford to have millions of able-bodied men and women unem-
ployed. We cannot afford the economic costs, the social dislocation and
the enormous human tragedies caused by unemployment” (# 143). How-
ever, the public goods argument (as developed by Samuelson) would de-
mand that one ask citizens how much they are willing to pay to increase
the level of employment – taking all advantages of employment into ac-
count – and that one then calculate the costs of public works or public sub-
sidies for increasing employment. However, such an approach implies that
one is willing to limit the commitment of funds to those that the public is
willing to pay and thus that one is willing to live with the unemployment
level resulting from the limitation of funding.
At this point the Pastoral shifts gears. It introduces a merit good argu-
ment which does not seem to accept a tolerable level of unemployment.
Rather the authors of the Pastoral present a moral argument and make a
moral appeal. The moral argument is articulated thus: “In the end, how-
ever, what we can least afford is the assault on human dignity that occurs
when millions are left without adequate employment” (# 143). The moral
appeal is formulated as: “current levels of unemployment are intolerable,
240 10. Catholic Social Thought and Recent Nobel Laureates in Economics

and they impose on us a moral obligation to work for policies that will re-
duce joblessness”(# 143) or “We must make it possible as a nation for eve-
ryone who is seeking a job to find employment within a reasonable
amount of time” (# 136) (Emphasis is mine). The argument for such an
appeal is based on a moral claim: “human work has a special dignity and is
a key to achieving justice in society” (# 136); and again “work has a three-
fold moral significance” (# 97). The recommendation is not to find the ef-
ficient level at which willingness to pay matches the costs of increased
employment. The demand is that unemployment be eliminated. As cost
considerations are not determinative, such a demand does not aim at eco-
nomic efficiency.
The Pastoral also points to poverty as a moral scandal (# 16). One
method advocated for fighting poverty is to ensure just wages through, for
instance, increasing the minimum wage (# 197). For that idea the Pastoral
presents a public good argument: “the persistence of poverty harms the
larger society because the depressed purchasing power of the poor contrib-
utes to the periodic cycles of stagnation in the economy” (# 196). Another
method advocated for fighting poverty is the use of education because
“lack of adequate education, especially in the inner-city setting, prevents
many poor people from escaping poverty” (# 203). For that idea, too, the
Pastoral presents a public good argument: “Working to improve education
in our society is an investment in the future” (# 204). However, the Pas-
toral does not seem to be willing to limit assistance to the poor to the limits
dictated by public goods arguments. Public goods arguments insist on lim-
iting the cost connected with an increase in the minimum wage to the sum
total of benefits that result from the increase and thus benefit the whole
economy. These arguments limit investment in education of the poor to
what can be defended as investment in the future. At the moment when in-
vestment in machinery or in medical schools leads to a greater expected re-
turn on investment then investment in the education of the poor would
have to be halted. However, the Pastoral seems to have a different attitude
toward poverty. The Pastoral does not advocate that poverty be remedied
to the extent that it is economically beneficial. Rather, the authors move
from a public good argument to a merit good argument when they write
that “Dealing with poverty is...a moral imperative of the highest priority”
(# 170) and “The themes of human dignity and the preferential option for
the poor ... compel us to confront the issue of poverty with a real sense of
urgency” (186). One of the causes of poverty is that: “Many poor people
are working, but at wages insufficient to lift them out of poverty” (# 174).
John Paul II defines sufficient wages as wages that “enable [a workman] to
support himself, his wife and his children,” i.e., as a family wage (John
Paul II 1991, p.18, no 8). The Pastoral and John Paul II have in mind a
 III. Economists and Catholic Social Thought 241

moral or meritorious goal: establishing just (family) wages and completely

eradicating poverty. The public good arguments appear as preliminary
steps toward the more ambitious moral and/or meritorious goals of full
employment, just wages, and the eradication of poverty.
Is mixing public good and merit good arguments hypocritical?
The Pastoral explicitly appeals to an argument (public goods) which
has build-in limits and whose limits it does not accept. I believe that
there is a more constructive way of viewing the Pastoral’s mix of ar-
gumentation. The Pastoral is primarily motivated by a moral or
meritorious goal. The authors of the Pastoral Letter are aware that
moral motivation is a scarce commodity. Therefore, they look for
other motivations that can nudge the members of the community in
the direction of their goal. Motivation is achieved by appeals to
enlightened self-interest as it is embedded in public good arguments.
Not implementing the recommendations of economic public good
arguments is missing an opportunity for gain. If a public good argu-
ment points the community in the direction of a moral goal then the
scarce resources of moral motivation will have to shoulder a lighter
burden. Such an argumentative strategy also makes it possible for
those who are morally motivated to take the first necessary social
steps in communion with the larger community. Fostering such
solidarity with one’s fellows in the pursuit of the common good is it-
self a worthwhile moral goal.

III. Economists and Catholic Social Thought

A. Buchanan and the Moral Idea of Fairness in Starting

Positions

Buchanan is very sensitive to insights derivable from Bator’s model: the

competitive free market is motivated to push automatically towards the
grand utility frontier and thus all interference with the market process
should be avoided. On the other hand, Buchanan acknowledges that there
is a question of fairness. Buchanan captures the American principles of
fairness by referring to the White House Easter hunt (Buchanan 1983, 59–
242 10. Catholic Social Thought and Recent Nobel Laureates in Economics

60). In order to make the hunt fair, small children are given an advantage
and older children are handicapped. The purpose is to make sure that all
have an equal opportunity. Similarly, Buchanan accepts the idea of fair-
ness as equal opportunity for all in the American economy. He distin-
guishes four factors in the success of individuals: good choices, luck, ef-
fort, and birth (Id., 58). Good choices and effort deserve to be rewarded.
Luck cannot be controlled. That leaves birth. Buchanan argues that birth is
an important factor in the success of an individual. One can be born with
native intelligence or one can be disabled. One can be born into poverty or
into great wealth. Buchanan argues that the American conception of fair-
ness demands that one address such inherent forms of unequal opportunity.
Interfering with the market process by legislating minimum wages or pro-
viding low income housing are, for Buchanan, all interventions that violate
the rule of market efficiency. On the basis of economic arguments, help is
only allowed as a re-arrangement of initial conditions. Bator’s original
model presented two initial factors of production: land (which can be gen-
eralized as wealth) and labor. Buchanan proposes that inheritances be
heavily taxed so as to make the material starting conditions of all citizens
more equal. He then proposes to use the revenue from inheritance taxes to
finance public education. Free public education equalizes the earning po-
tential of all citizens.
Buchanan himself greatly stresses that his proposal cannot be under-
stood in the light of or be justified by appeals to the concept of public good
(Buchanan 1983, 65). Indeed, the public good argument for education is
based on the joint or collective consumption of education. Buchanan’s ar-
gument for making education public is his concern for “potential adjust-
ments in starting positions...making the game ‘fair’” (Ibid.). Buchanan’s
argument for publicly financing education is thus a moral or a merit-based
argument. His suggestions aim at handicapping some privileged individu-
als and improving the chances of others so as to create more equal oppor-
tunities for all.
Public education as a commodity whose general provision is justified by
a public good argument should be limited to what the people want to pay
for and should ideally be financed by user fees (tuition). Indeed, the cen-
tral idea of a public good is that people take joint action because there is
joint consumption. The goal of the joint action is that nobody should be
worse off and that some should be better off. Public education justified by
a moral or meritorious argument is not limited to what people are voluntar-
ily willing to pay. A moral or meritorious goal is aimed at a result that is
deemed (morally) good and some citizens will be charged more than they
get back in return.
 III. Economists and Catholic Social Thought 243

Buchanan’s view on education is similar to the view developed in the

Pastoral letter in that both want to use public financing of education as a
means to a moral goal. Buchanan wants to achieve a more equal starting
position for all citizens and the Pastoral wants to lift the poor out of pov-
erty.

B. Stiglitz: Criticizing Economic Theory in the Name of

both Economic and Moral Goals

Joseph E. Stiglitz argues in his “Whither Reform? Ten Years of the Transi-
tion” that the Washington consensus, as it is based on conventional neo-
classical economics, misunderstands the working of the modern economy.
As a consequence, the transition from a command economy to a market
economy in Eastern-Europe and the former Soviet Union has been badly
mismanaged. Let me briefly summarize again the facts which form the ba-
sis for Stiglitz’s reasoning.249 Stiglitz presents a chart comparing the 1989
and 1997 GDPs (Gross Domestic Product) of these countries. Only Poland
had a slightly higher GDP in 1997. All other countries had a lower GDP in
1997 than in 1989 (Stiglitz’s Figure 3). Countries such as China and India,
which regularly violate the recommendations of Western economic theory
increased their GDP each year, sometimes with double digit numbers.
Also alarming is that Russia not only lost about half its GDP in that period,
but the Gini coefficient of inequality250 in that time period roughly dou-
bled (Stiglitz’s Figure 2).
The basic thesis of Stiglitz is that “conventional neoclassical economics
are likely to underestimate the importance of informational problems, in-
cluding those arising from the problems of corporate governance; of social
and organizational capital; and of the institutional and legal infrastructure
required to make an effective market economy” (Stiglitz, Abstract). Put in
another way, Stiglitz argues that it is true that the success of the market
economy is connected to the fact that prices are used as signals to co-
ordinate production.251 However, “Prices do not convey all the relevant in

249
For the development of Stiglitz’s ideas about the misunderstood role of entrepreneurial
talent in the countries of the FSU see Chapter 9, Section IV.
250
The Gini index of inequality is a number between zero and one that indicates the ine-
quality of income in a country. A Gini index approaching zero indicates that the country
approaches almost total equality of income). A Gini index approaching one indicates that
the country has almost complete inequality of income (one person having almost all in-
come).
251
The publications of Arrow and Debreu have proven this insight mathematically (Arrow
& Debreu 1954).
244 10. Catholic Social Thought and Recent Nobel Laureates in Economics

formation” (Stiglitz 4).252 Let us concentrate on one of the author’s argu-

ments: institutional and legal infrastructure in the economy.
Stiglitz refers approvingly to Schumpeter’s idea of creative destruction
in a well-functioning economy. Some factories or corporations use re-
sources (material and labor) in such an inefficient way (because they pro-
duce inefficiently or because they produce unwanted gadgets) that they
must be allowed to go bankrupt. Bankruptcy of an inefficient corporation
allows for those resources to be redeployed for more efficient usage, creat-
ing a total economy that operates more efficiently. The pain of bankruptcy
is a necessary condition for moving the total economy to a higher utility
frontier. However, Stiglitz rightly points to the legal and social institu-
tions required for the destructive part of bankruptcy to become creative.
A first condition for bankruptcy to become a positive move toward im-
provement for the total economy is that there be more efficient alternatives
available. If there are no better alternatives available, then the ineffi-
ciently-used resources will not be re-employed more efficiently; rather,
they will become idle. Large-scale unemployment means that the econ-
omy allows inefficiently used resources to not be used at all. Making no
use of resources is not an improvement relative to the meager yet still posi-
tive productivity of inefficiently-used ones (Stiglitz 6).253 Where there is
large scale unemployment Stiglitz argues (in a manner consonant with
Catholic Social Thought) that “Vigorous programs of employment creation
and maintenance [even if partially inefficient!], through promotion of en-
trepreneurship and/or by Keynesian stimuli, must go hand in hand, if not
precede, bankruptcy-induced restructuring” (Stiglitz 8).
A second condition for the destructive aspect of bankruptcy to become
creative is that the two pillars of creative economics be solidly in place:
entrepreneurship and banking. Entrepreneurship existed in former com-
munist countries. However, under communist regimes workers had ac-
quired skills that are not useful for “creating new businesses and compet-
252
Stiglitz refers to the following authors who point to important economic information not
conveyed by prices: Marshall, Keynes, Berle and Means, Galbraith, Baumol.
253
Martin Summers, the East European Desk Officer for the Catholic Fund for Overseas
Development in Great Britain presented similar ideas in the November 10–13, 1993 Za-
greb Conference on the usefulness of Catholic Social Thought for the transition from a
command economy to the free market. He explicitly warned: “Post-Communist countries
are, however, as vulnerable as any to the disempowering process of the de-regulated inter-
national market.” (Summers 1994, 244). He also writes: “the upsurge of New Economic
approaches...does hold out the promise of a significant re-localization of economic activity”
(Ibid., 245). His suggestions are micro-suggestions which do not form an overall plan for
economic reform in Eastern Europe. Summers shows unease with the then-prevailing hope
that international competition will do the job and he makes some modest alternative sugges-
tions. Summers argues tentatively for what Stiglitz now argues for forcefully.
 Conclusion 245

ing in the international market place” (Stiglitz 7). Indeed, good entrepre-
neurs under communism “acquired skills in evading government regula-
tions, in arbitraging away some of the inefficiencies in government regula-
tions for private profit, and in operating at the interstices between the legal
and the illegal world” (Ibid.). In communist countries there were institu-
tions that were called banks. But that “banking system had no experience
in screening and monitoring loans” and few banks “actually got into the
business of providing funds to new, small enterprises” (Stiglitz 7). Thus
the lack of the proper experience in the banking institutions resulted in en-
trepreneurs with good ideas not receiving the capital necessary for realiz-
ing possible innovations and thus employing more productively the re-
sources idled by bankruptcies.
A third condition for the potential creative dimension of bankruptcy is a
legal framework that includes bankruptcy laws and judges capable of ap-
plying those laws. In bankruptcy there is a conflict between creditor and
debtor. Stiglitz refers approvingly to Supreme Court Justice William O.
Douglas and Henry Clay when they claim that the interest of the State in
bankruptcy is “in all the faculties of its members, moral and physical”
(Stiglitz 7). The speed and manner in which the “assets can be re-engaged
in productive use” is a crucial consideration. (Ibid., 7). The advice that in
ex-communist countries one should simply enforce bankruptcy laws is
therefore empty advice. Bankruptcy laws barely existed and were rarely
applied under communism. Neither the law nor the experience of judges
existed to promote the creative redeployment of the resources of bankrupt
enterprises.
Stiglitz argues that reformers cannot hope that the imposition of pure
free market competition in the absence of appropriate legal and institu-
tional arrangements will be effective. He concludes that one first will have
to create “the implicit social contract, necessary to a market economy”
(Stiglitz 8). This is a theme that is also stressed in Catholic Social
Thought.

Conclusion

Adam Smith sometimes argues that the economy is a natural system (651).
He seems to imply that economics and nature have the same ontology: they
are both governed by immutable laws. Violating these immutable laws of
economics leads to unproductive usage of resources, as Adam Smith ar-
gues was the case with societies where governments intervened (improp-
246 10. Catholic Social Thought and Recent Nobel Laureates in Economics

erly) in the name of mercantilism or physiocratic economic theories (650–

51).
Hegel, on the other hand, looks upon the economy as an ethical institu-
tion (Hegel 1967 a, ## 182–256; Ver Eecke 1983; Chapter 3 in this book).
The economy has an important role to play in the promotion of freedom.
A successful economy liberates human beings from the tyranny of nature
by preventing starvation and by elevating natural needs to cultural events
(meals as social gatherings, clothing as cultural expressions). A successful
economy also provides a domain where human beings can realize impor-
tant aspects of their freedom: it allows individuals to achieve dignity in and
through work. Finally, a successful economy encourages individuals to
transcend their individuality and realize the social vocation of human be-
ings. The economy gives rise to many morally desirable forms of social
interaction, to the formation of social groups, and to the exercise of some
types of social caring. Hegel agrees that economic activity is carried out
within a double form of determinism: the determinism of nature and the
determinism of social interaction. Hegel would thus reject a purely volun-
tarist moral view of the economy but would also reject a purely determinis-
tic approach devoid of moral responsibility.
Like Hegel, Adam Smith, in his concrete analyses, also assigns moral
responsibility to economic agents and argues in favor of responsible ac-
tions but against irresponsible ones.254
Given that the economic domain is a domain of natural laws and a do-
main of moral responsibility,255 it is not surprising to have discovered that,
de facto, both the economic and the moral discourse about the economy
are discovering and respecting the dual ontological nature of the economy.
What some might criticize as an illegitimate confusion in the two dis-
courses on the economy should rather be applauded as the discovery of and
manifestation of a proper respect for the ontological complexity of the
economic domain.

254
For a general argument in favor of responsible intervention in the economy see Adam
Smith’s considerations about public works and public institutions (651 and Book V, Ch I,
Part III). For a general argument against irresponsible intervention in the economy see
Adam Smith’s argument against the use of government regulations for the creation of pri-
vate benefit (250).
255
Goetz Briefs concludes his masterful essay on the history of the influence of ethics on
economics as follows: “A degree of freedom exists, and there are functions of the state that
are vital. But we realize now as never before the existence both of a realm of necessity
ruled by economic laws and of a variable zone of freedom. Because of this freedom, ethics
again has a place in economic life... [and] a place in economics proper”(Briefs 1983, 298).
Conclusion

In reflecting philosophically about the economy and its management I

made use of ideas about the proper organization of the economy in order
for the economy to be able to make its contribution to the morally good so-
ciety as developed by Adam Smith, Hegel and Catholic Social Thought.
My position can best be understood as that of an admiring but rebellious
child of Adam Smith. I accept as true the ideas of Adam Smith as devel-
oped in his Wealth of Nations, but I am convinced that Adam Smith under-
estimated the broad applicability of the positive role of the government in
managing the economy, which he relegated to the fringes of his system.
Followers of Adam Smith who insist, against my arguments, that the
ideas about the positive role of the government advocated by Adam Smith
should not be given a more expansive role than he gives them, can rightly
see this book as a radical rejection of Adam Smith’s thought. I do not see
my book in that light. Let me spell out my five conclusions.
First, I believe that Adam Smith introduced new ideas about the econ-
omy that authoritarian regimes and authoritarian ways of thinking are
afraid of. I will highlight my agreement with Adam Smith’s novel in-
sights.
Second, as a sophisticated thinker, Adam Smith also included in his
Wealth of Nations ideas that contradicted his main thesis, i.e., ideas that re-
fer to the positive roles of the government in the economy. He referred to
them as exceptions to his general thesis. I will stress the importance of
these ideas even if Adam Smith marginalized them.
Third, Adam Smith made a general claim about the inherent danger of
the government. I agree with this warning but at the same time I argue that
one can expect great rewards for societies that can find an artful solution
for the dangers pointed out by Adam Smith.
Fourth, economic theory can be generalized to illustrate the functions of
government in the economy which Adam Smith already noticed but mini-
mized.
Fifth, the moral demands made by Adam Smith regarding the govern-
ment can also be generalized instead of keeping them at a minimum, thus
rejecting his ontological view of the economy as being mostly a natural
system
248 Conclusion

The first two conclusions thus show my dependence upon Adam Smith.
The three other conclusions show where I go beyond Adam Smith. I like to
think that I only stretch the arguments of Adam Smith. Others might think
that I reject Adam Smith. I personally think that I do not reject Adam
Smith’s practical thinking about the economy. I agree that I explicitly re-
ject Adam Smith’s views on the ontology of the economy. He sees the
economy more as a natural system like nature. He thus sees economic the-
ory much like a natural science. I see the economy both as obeying some
iron laws much like laws of nature (using scarce resources is paid for by
forgoing alternative usages of these resources) and as providing moral op-
portunities (should work be made safe, how safe and at what cost?) which
require economic theory to deal with all the complexities of moral free-
dom. For articulating that dimension of economics, I find much more
guidance in authors other than Adam Smith.

1. In this book I take for granted a number of ideas which were revolu-
tionary when Adam Smith wrote them down. These ideas are consonant
with those of another philosopher whose ideas guided me: Hegel. Modern
society discovered and accepted the crucial role of the individual for sci-
ence, for religion and for the organization of society (Chapter 2 of this
book). Hegel credits the British economists (Steuart and Adam Smith)
with the ability to articulate the legitimate role of the individual in eco-
nomics. Smith’s arguments, known as the invisible hand theory, are that
self-interest and self-responsibility of individuals will create a productive
economic system responsive to the needs of people (651). Smith argues
that neither government planning nor the moral virtues of friendship or be-
nevolence can be relied upon to provide the thousands of economic trans-
actions that people rely on everyday (14). Self-interest is also credited as
promoting economic growth by means of technological inventions and di-
vision of labor. Adam Smith uses the example of the pin factory and the
ingenuity of the boy working with fire-engines to make his point (3-10).
The failure of command economies can be attributed to the fear of those
societies for the freedom of individuals. Repression and restriction of
freedom led to poor economic outcomes. I relied on the ideas of von
Mises to show that command economies could, in principle, not succeed in
mobilizing self-interest so as to create a successful economy (Chapters 9
and 10). I relied on the ideas of Hegel and of Catholic Social Thought,
particularly as formulated by John Paul II in his Centesimus Annus, to
connect self-interest with the idea of individual freedom. Both Hegel and
John Paul II use the connection between self-interest and freedom as the
stepping stone to argue that individual freedom requires a proper social
 Conclusion 249

environment (Chapter 3, 4, 9 and 10). I use these ideas to go beyond the

insights of Adam Smith.

2. In this book I make use of insights by Adam Smith that many of his
admirers overlook or tend to minimize. They are arguments in favor of
governmental tasks if not duties that economists need to understand and
accept. A first argument is a defense of the government’s role in the pro-
vision of public goods which has great similarity with Samuelson’s view
of the matter (Chapter 6 and 9). A second argument concerns several cases
of what I call merit good arguments. The government intervenes in the
economy on merit good grounds if it lacks a public goods argument (self-
interest argument) and/or a public good’s method of financing (nobody is
worse off after the government’s intervention). Adam Smith produces ar-
guments in favor of property rights and justice, in favor of conscription,
and in favor of subsidized education which are not in tune with the public
good’s argument. I see them as providing justification for the concept of
merit good as introduced by Musgrave and defended in chapter 5 of this
book. A third argument for a role of the government is Adam Smith’s
method of dealing with dangers to the emerging banking sector. In order
to prevent the lack of trust in the banking sector Adam Smith agrees that
the government can violate the claims of “natural liberty.” He crafts his
argument skillfully. He agrees to two restrictions on bankers. They cannot
issue notes below a certain amount and they must commit themselves to
immediate and unconditional payment of their notes (313). He gives as
argument for the restriction of “natural liberty” the interest (security) of the
whole community (308). It is this argument which I see as having broad
applicability for my own reflection. The disagreement lies in how to inter-
pret the reasons for limiting the “natural liberty” of individuals. Adam
Smith literally writes that the argument concerns security. I interpret the
word ‘security’ in the context used by Adam Smith to mean: any very im-
portant interest. These interests must be so important that they are morally
relevant. Finally, Adam Smith stresses that any economic activity should
be left as free as [reasonably] possible (313). I agree with this recommen-
dation.

3. Adam Smith provides a socio-economic analysis of politics. He argues

that both the landowners and the labor class have economic interests which
are similar if not identical to those of the society at large. However, their
daily work or non-work (landowners) results in a lack of understanding of
the complexities of a modern economy. On the other hand, the daily ac-
tivities of the third class – the employers – make this class very knowl-
edgeable in economic affairs. Unfortunately, their interests are often in
250 Conclusion

conflict with the interests of society at large. Adam Smith concludes that
any law proposed by this class should be looked at with suspicion (250). I
agree with this warning about all proposed legislation. In his wisdom
Adam Smith does not conclude that new governmental laws and regula-
tions should be rejected. He advises that they be carefully scrutinized
(Ibid.). In my book I point to the rewards for the whole society if the gov-
ernment’s tasks have been done well or the losses if these tasks have not
been done or have been done badly. I defend a number of tasks which the
government should undertake without going into a debate on what and
how precisely these tasks should be performed. I limit my tasks to arguing
where the government has a responsibility. I do not discuss how these
tasks have to be discharged except that I agree with the recommendation of
Adam Smith that maximum reasonable freedom should be aimed at in
economic activity.

4. I go beyond Adam Smith by generalizing Adam Smith’s arguments in

favor of the government’s tasks with reference to public and merit goods.
About public goods one can argue that Samuelson’s approach is consonant
with the ideas of Adam Smith. Samuelson, though, demonstrates that us-
ing the government in order to solve the public good’s problem is not that
simple. We reported on Samuelson’s point that self-interested consumers-
citizens have an interest in falsifying their reported interest in the public
good for which the government is going to charge them according to their
declared interest in the good. The government must thus make decisions
about the provision of public goods without full knowledge. Other au-
thors, like Stretton and Orchard, argue that, in practice, government is of-
tentimes forced to choose between economically worthwhile public goods
because of competing budget priorities. Libertarian authors, such as
Schmidtz, point out that the provision of public goods requires the viola-
tion of property rights of some consumers (confiscation of land for build-
ing highways or bridges; levying taxes to raise the funds for providing
public goods). I solve these problems theoretically by arguing that the
concept of public good is an ideal concept which is most often only partly
realized in any economic event, because that same economic event might
have aspects of several economic concepts including the concept of merit
good. Confiscating the land of the farmer against his objections is, in my
opinion, not justifiable on public goods grounds, even if compensated at
market price. However, a public good might have such a great social value
such that, in Adam Smith’s words, “natural liberty” may be violated in fa-
vor of the security (interest, in my view) of society. It thus has a merit
good dimension. Libertarians want to restrict the right to violate “natural
liberty” to cases of survival of society. I argue that less dramatic argu-
 Conclusion 251

ments than survival of society can justify societal interventions in private

property rights.
I also pointed out that there are two other methods for of dealing with
the problem of public goods. The first method is the one promulgated by
Olson that analyzes the formation of groups (interest or lobbying groups)
for the purpose of providing public goods of interest to the group mem-
bers. This method of securing public goods leads to either over-provision
(a feast) of the public good if the interest group can mobilize itself or to
under-provision or no provision at all (famine) if the interest group cannot
mobilize itself. The government might be asked to violate “natural liberty”
if the public good that is under-provided or not provided is of great impor-
tance to society such as safety in the work place. Here the government is
asked to create laws that provide the private incentives for interested
members to become a member of the interest group such as union shop
legislation.
The second method for providing public goods not considered by Adam
Smith is the creation of club goods in which the good (recreation) is pro-
vided only to the members. This method of addressing the problem of
public goods rests on the use of exclusion of non-members to the good
provided. This method has the by-product of allowing discrimination
which is recently considered so morally sensitive in the USA that the gov-
ernment has severely restricted the “natural liberty” of creating club goods
as one sees fit.
Each of the three methods of providing public goods includes on the
fringes of its implementation actions that either restrict or demand restric-
tion of our “natural liberty.” On the fringes, the implementation of public
goods demands, as I see it, help from the concept of merit good (Chapter
6).
With regard to the concept of merit good I feel that Adam Smith under-
stood the three aspects of the concept without using the name of the con-
cept (Chapter 5). He understood that there was an infringement on the
“natural liberty” of some persons, which is not the case with the concept of
public good. His clearest example is that of induction in the army. He un-
derstood that merit goods would need to find a different financing method
than public goods. Thus the payment cannot be tied to one’s personal en-
joyment (utility). Instead, Adam Smith proposed as financing method for
paying for what we now call merit goods: taxation according to ability to
pay. Finally, Adam Smith understood that one needed serious arguments
for the provision of merit goods in as much that they always included some
infringement on “natural liberty.” In some cases he appealed to the secu-
rity of the whole society in support of his argument (308). In other cases
he appealed implicitly to some moral value like courage (as partial justifi-
252 Conclusion

cation for obligatory induction on the army) or respect for the importance
of the mind of all people including the poor (to justify subsidized educa-
tion for the poor) in order to justify merit goods activity. For my devel-
opment of broad categories of merit goods I build upon Adam Smith’s ar-
guments for the necessity of the institution of private property and its
protection by a justice system against thieves and an army against foreign
invasions. Adam Smith provides a minor argument for the government’s
role in the banking system. The neo-liberals provide a much broader series
of arguments. Adam Smith mentions the worthiness of education for re-
ceiving subsidies, yet he seems to restrict his justification to education for
the poor. Since the middle of the nineteenth century education has become
much more central to the well functioning of society as documented by
Scheer. Since the great depression, dealing with business cycles has been
another recognized task of the government, advocated with great persua-
sion by Keynes. I also argue for the importance of measures sometimes
grouped under the title of safety net or welfare state measures. They in-
clude help for the disabled, the sick, the unemployed and the retired. Fur-
ther categories deal with health issues, with a workable social contract that
avoids the need for civil unrest in its many economically disastrous forms,
with the protection of the environment, with the promotion of strategic in-
vestments and, finally, with the protection of symbols of cultural identity
(Chapters 5 and 9).
My reflections on the concepts of both public and merit good can be
understood as a further elaboration of thoughts already present in Adam
Smith, even though Adam Smith minimizes their importance.

5. I disagree with Adam Smith when he sees the economic domain as be-
ing mostly a natural system, implying that economic science is like a natu-
ral science. Instead, I see the competitive free market as an institutional
arrangement which recognizes that there are strict economic laws (see the
Bator model) but which also recognizes freedom at work (free economic
agents create cartels and trusts to escape the harshness of the competitive
free market). I like the conclusion of Briefs’, stating:

A degree of freedom exists, and there are functions of the state that are vital.
But we realize now as never before the existence both of a realm of neces-
sity ruled by economic laws and of a variable zone of freedom. Because of
this freedom, ethics again has a place in economic life and hence...a place in
economics proper. The era of determinism accommodated by silent and im-
plicit ethical assumptions is over. (Briefs 1983, 298)

In my opinion the free competitive market recognizes the “realm of ne-

cessity ruled by economic laws” by creating an institutional arrangement
 Conclusion 253

based on the harsh rule that individuals have a right to a share of the goods
and services produced in the economy only if they themselves produce
something that others want. If they do not, then the institutional arrange-
ment deprives them automatically of any rights to a share of those goods
and services. Such individuals are thus faced with bankruptcy, starvation,
or both.
Understanding the harshness of the competitive free market leads to two
consequences. The first consequence is that it is unreasonable to expect
that the free market will operate properly on its own initiative. Given its
harshness it needs to be imposed. Adam Smith saw this very well when he
argued that property rights need to be installed and enforced for the free
market to take off. The neo-liberals understood that the enforcement of the
preconditions of free market exchanges (property rights) was not enough to
have the theoretically desirable outcome expected from the competitive
free market. The neo-liberals knew that many would try to evade the
harshness of the system in a way that would diminish the attractiveness of
the institutional arrangement. They focused on the efficiency expected
from the competitive arrangement and argued that the government should
prevent the erosion of the competitive arrangement (anti-trust legislation)
and simultaneously create additional arrangements (banking regulations) in
order to positively promote the efficiency of the economic system (Chapter
4).
The second consequence of understanding the harsh dimension of the
competitive free market arrangement is the idea that, for moral reasons, at
least some catastrophic consequences of that harshness need to be avoided
or mitigated (starvation is unacceptable; poverty needs to be mitigated).
Hegel pointed out, however, that mitigating the harshness of the competi-
tive system is not costless and will have to be paid for by those who are
subjected to its harshness. Those asked to pay to alleviate poverty and
avoid starvation might therefore feel cheated. Such enforced charity will
meet with resentment and will, so Hegel argued, put up a barrier on how
much the harshness of the competitive system can be remedied.
One of the main purposes of introducing and defending the concept of
merit good by Musgrave was to deal with the limits to the welfare state.
Musgrave argued that if the rich and the well-off, who are asked to pay for
the alleviation of poverty, can control what their money is used for, there
might be a greater willingness to support the poor. One way to let them
exercise such a control is to donate goods in kind to the poor rather than
simply give money. The goods considered worthy of being given to the
poor are called merit goods (free school lunches, subsidized housing, free
hospital care). Restricted to this usage, the provision of merit goods is a
tool for public policy to weaken the formation of resentment that could
254 Conclusion

limit the implementation of the morally desirable goal of redistribution

within the harsh environment of the competitive free market.
The insight that the competitive free market needs institutional ar-
rangements implies the involvement of politics in the economy. However,
economic actors also try to influence politics. This interconnection of poli-
tics and economics has both promises and risks. The promise is that poli-
tics can influence the ethical goals realized by the economy. The govern-
ment is assigned the task of protecting legitimate property rights. The
government is also asked to create the institutional arrangements that make
economic transactions fair and efficient. Finally, the government is called
upon to create a safety net in order to soften the harshness of the competi-
tive system. On the other hand, the interconnection of politics and eco-
nomics also has its risks against which Adam Smith already warned us.
The government can become an instrument of interest groups, particularly
if interest groups have an important electoral influence. As a consequence,
governmental action can undermine several ethical goals of the economic
system. It leads to inefficiency (Olson), to injustice (Lowi), and lack of
concern for the common good (Briefs).
Our first conclusion about the free market as a socio-political en-
tity obeying moral demands pointed towards the presence of resent-
ment as a limiting factor for even a minimal safety net. Our second
conclusion pointed towards the risk of undue influence of politics in
economics and of economic actors in political decisions. Thoughtful
constitutional arrangements are important to deal with these two
negative possibilities of the interconnection of politics and econom-
ics. The current development of capitalism, with the emergence of
both interest groups and a bargaining form of democracy, creates a
defective way of structurally relating politics with economics. Some
(Lowi) believe that this structural deficiency is more pronounced in
the United States than in other Western countries. Hegel and Catho-
lic Social Thought argue that there is an inevitable deficiency in the
competitive economic system, even if it is combined with a constitu-
tional government (resentment will limit the extent of an ethically
required safety net). An effective ethical discourse (including pro-
nouncements of churches on justice in the economy) might provide
additional help to partially remedy the two deficiencies of our com-
petitive free market. I believe it to be both unrealistic and defeatist
to hope for improvements only from constitutional changes. It is de-
featist in that it minimizes the efficacy of ethical discourse; it is also
defeatist in that it confesses to have no remedy at all for the malady
 Conclusion 255

of modern society pointed out by Hegel: resentment for government

organized redistribution. The exclusive hope in constitutional ar-
rangements is unrealistic in the sense that it is hoping for an all or
nothing solution. In anticipation of an ideal constitutional arrange-
ment, which Hegel argued we cannot hope for, one finds oneself in a
defective situation that cannot be changed. Betting on at least par-
tial efficacy of ethical discourse on the economy allows one to work
for steady if minimal improvement and it might also create the moral
motivation for meaningful constitutional changes if that proves de-
sirable.
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Indices
Proper Names
A C
Adams ........................ 114, 115, 130
Andel .................... 95, 111, 115, 122
Anderson ......................................77
Angehrn........................................39
Arrow ................................. 121, 243
Audi................................................1
Avineri.... 55, 56, 57, 58, 60, 61, 171
B
Bach............................................117
Bane.................................... 190, 194
Barrero....................................... VIII
Bator.... 20, 225, 226, 231, 232, 233,
237, 241, 242, 252
Baudrillard....................................76
Baumol .......................................244
Benn .............................................73
Berle ...........................................244
Bird.............................................128
Boey .............................................26
Bohm ..........................................127
Bowles................................ 216, 219
Brenkert........................................87
Brennan ........ 95, 107, 108, 184, 185
Briefs VIII, 4, 5, 6, 49, 96, 151, 153,
154, 155, 156, 157, 158, 160,
161, 168, 174, 175, 178, 179,
180, 246, 252, 254
Broome.........................................95
Brown.........................................210
Buchanan2, 30, 52, 53, 69, 108, 126,
128, 130, 164, 241, 242, 243
Byers ................................ 18, 20, 21
Calvin .............................................4
Campos........................... 69, 75, 220
Cervantes....................................160
Chamley ......................... 39, 81, 167
Charlemagne.................................47
Clarke ......................... 137, 138, 140
Clay ............................................245
Clinton........................................191
Coletti........................................ VIII
Cornes 115, 118, 134, 135, 136, 144
Cristi..................................... 74, 163
Cullen ...........................................39
Culyer.........................................107
D
De Wulf............................. VIII, 214
Deboeck............................... VIII, 82
Debreu ........................................243
Deng ...........................................200
Denis ......................................39, 81
Desan.................................... 35, 107
Descartes .............................. 49, 204
Diogenes.....................................172
Doolittle.............................. 193, 195
Douglas ......................................245
Douglass.................................... VIII
Dubouchet ....................................39
Dudley ..........................................39
Dupré.......................... 200, 201, 210
E
Edwards........................................73
Ehrhard.......................................104
Ellwood .............................. 190, 194
Engels.........................................204
274 Indices
Eucken............ 49, 91, 104, 105, 214
Evans ............................................20
F
Ferguson .....................................180
Fleischmann..................................39
Foley...........................................144
Folkers..................................99, 108
Freund.........................................210
Friedman................. 6, 21, 46, 78, 79
G Hume ............................................73
Galbraith.............................136, 244
Gallston ......................................191
Gärdenfors ....................................95
Ghesquiere......................... VIII, 215
Gingrich......................................191
Gintis ..................................216, 219
Godwin .........................97, 124, 125
Gompers .....................................157
Goodin..................................95, 139
Gorbachev ..................................200
Green ..........................................139
H
Hahn ...........................................121
Harada ..........................................39
Hardimon......................................39
Harris.........................................VIII
Hattwick ....................................VIII
Hausman.................................86, 96
Hayek . 1, 21, 46, 49, 76, 78, 79, 214
Head .. 23, 64, 65, 66, 67, 75, 83, 91,
95, 96, 97, 107, 115, 126, 127,
128, 129, 130, 132, 133, 136,
138, 172
Hegel ... 1, 2, 3, 4, 5, 6, 8, 10, 11, 17,
21, 23, 24, 25, 26, 27, 28, 29, 30,
31, 32, 33, 34, 35, 39, 40, 41, 42,
43, 44, 45, 46, 47, 48, 49, 50, 51,
52, 53, 54, 55, 56, 57, 58, 59, 60,
61, 62, 63, 64, 65, 66, 67, 68, 69,
70, 71, 72, 73, 74, 80, 81, 82, 83,
86, 87, 91, 103, 113, 145, 151,
153, 161, 162, 163, 164, 165,
166, 167, 168, 169, 170, 171,
172, 173, 174, 175, 178, 179,
180, 199, 200, 201, 203, 204,
205, 206, 209, 211, 220, 235,
246, 247, 248, 253, 254, 255
Henrich .........................................39
Hirschman 69, 72, 78, 156, 160, 178
Hobbes........................................160
Hochman ....................................184
Horace ....................................32, 33
Horstmann ....................................39
Hughes.......................................VIII
Hyppolite ......................................54
J
Jackson .........................................95
Jarczyk..........................................39
Jasay ...........................................187
Jermann ........................................39
Jesus .............................................21
John Paul II.... 9, 101, 209, 235, 236,
240, 248
K
Kainz ............................................39
Kaiser .........................................215
Kamarck .....................................191
Kant . 1, 9, 91, 98, 99, 105, 106, 203,
204
Kennedy .....................................154
Keynes... 68, 85, 100, 157, 215, 235,
244, 252
Kiesling ......................................138
Knox .............................................46
Kraus ......................................39, 62
L
Labarrière .....................................39
Langan................................152, 153
Levine.............................35, 69, 146
Lindahl .......................................144
Locke............................................73
Lomasky .....................107, 108, 185
Lowi ...... 4, 5, 6, 151, 153, 154, 155,
158, 160, 161, 174, 175, 178,
179, 180, 254

Lucas ............................................39
Lukacs ..........................................39
Luther ................................... 49, 204
Lycurgus.......................................60
M
Mackel....................................... VIII
Mackscheidt ...... 108, 109, 111, 115,
138, 139
Maker ...........................................39
Malkin ... 7, 108, 116, 117, 118, 119,
126, 130, 135, 144, 146, 189
Marshall..... 126, 127, 128, 130, 131,
244
Martin...........................................77
Marx ...... 1, 39, 59, 76, 82, 102, 171,
179, 199, 200, 201, 204, 205,
206, 210, 232
McCormick 114, 115, 117, 124, 130,
144
McKeown...................................210
McLure................. 67, 95, 96, 98, 99
McPherson....................................96
Mensbrugghe................................77
Mises ..... 1, 39, 46, 76, 78, 200, 202,
203, 232, 233, 248
Molitor........................ 104, 108, 109
Morris.........................................210
Mueller .......................................137
Murphy.........................................58
Murray..........................................76
Musgrave8, 9, 24, 66, 67, 91, 92, 93,
94, 95, 96, 97, 100, 107, 108,
109, 110, 118, 121, 122, 123,
130, 189, 215, 238, 249, 253
N
Naberhaus.................................. VIII
Nash ................................... 115, 136
Nawroth................................ 76, 103
Nelson ................................ 213, 214
Newton .........................................72
Nixon..........................................154
Nobel ................................ 2, 10, 223
Novak .................. VIII, 69, 171, 209
Nowacki .................................... VIII
Nozick ........ 151, 152, 153, 187, 233
Proper Names 275
Nussbaum.....................................86
O
O’Malley ....................................179
O’Mara ...................................... VIII
Olson4, 5, 6, 7, 83, 84, 88, 116, 118,
132, 135, 140, 141, 142, 143,
144, 151, 153, 158, 159, 160,
175, 178, 179, 180, 187, 251, 254
O'Malley.......................................59
Orchard............... 135, 140, 238, 250
Ostrom 115, 124, 126, 129, 130, 134
P
Pareto....... 7, 99, 103, 105, 115, 127,
136, 137, 138, 140, 143, 216,
226, 228
Parise ............................................35
Pascal..........................................160
Pelczynski ....................................39
Perkins........................................215
Phillips.................................. 20, 224
Plato 32, 43, 60, 61, 76, 92, 167, 225
Pöggeler........................................39
Prasch ................................... 20, 224
Priddat ... 9, 39, 64, 65, 68, 107, 110,
111, 138, 145, 190
Pulsipher.......................................95
R
Racine.........................................160
Rahner ........................................157
Rawls.......................... 151, 152, 153
Rees ..............................................20
Remley ...................................... VIII
Reyburn ........................................39
Riedel ...........................................39
Ritter.............................................54
Robespierre...... 4, 25, 53, 54, 81, 82,
205
Rochefoucauld............................160
Rodgers ......................................184
Roosevelt....................................154
Root ................................ 69, 75, 220
Roth ..............................................39
276 Indices
S Steinberger....................................39
Sakharov.......................................63
Samuelson7, 20, 34, 83, 84, 88, 110,
115, 116, 118, 119, 120, 121,
126, 128, 131, 132, 134, 135,
136, 137, 138, 139, 140, 144,
187, 188, 189, 237, 239, 249, 250
Sandler....... 115, 118, 134, 135, 136,
140, 144
Sartre ..........................................169
Scheer .............................9, 106, 252
Schmidtz66, 109, 139, 187, 189, 250
Schumpeter.. 39, 100, 101, 104, 218,
244
Seeberger ......................................40
Sen...... 2, 86, 97, 184, 212, 213, 220
Sharp...........................................128
Sheth.....................................20, 224
Simons..... 9, 49, 66, 76, 77, 91, 103,
104, 105, 214
Skall...........................................VIII
Smith 1, 2, 3, 4, 9, 27, 32, 33, 39, 46,
49, 50, 57, 64, 71, 72, 73, 77, 78,
81, 82, 91, 100, 101, 102, 103,
120, 121, 136, 142, 161, 162,
167, 168, 169, 202, 204, 205,
206, 212, 214, 245, 246, 247,
248, 249, 250, 251, 252, 253, 254
Sokol...........................................214
Sokolowski ...................................79
Solon.............................................60
Steuart...........................81, 167, 248
Stevens ...............................137, 138
Stiglitz ... 2, 217, 218, 219, 233, 243,
244, 245
Stretton ............... 135, 140, 238, 250
Summers.....................................244
T
Taylor ..................................VIII, 95
Tideman......................................189
Tullock .......................................189
V
Veblen ................................229, 230
Ver Eecke ...... 24, 51, 54, 85, 91, 96,
205, 214, 215, 246
W
Walsh....................................95, 184
Waszek ...........................39, 81, 167
Weber .........................................158
Webster.......................................117
Whitebook ....................................39
Wicksell......................................137
Wildavsky...... 7, 108, 116, 117, 118,
119, 126, 130, 135, 144, 146, 189
Winfield............................39, 75, 88
Wolfowitz.....................................77
Wood ............................................39

Subjects
ability-to-pay-method, 102
alien, aliens, 26, 55, 156, 157
alienate, alienation, 27, 49, 53, 55,
57, 58, 59, 60, 81, 206
allocate, allocation, 93, 100, 115,
120, 144
angular, angularity, 107
anti-competitive, 233
anti-trust, 6, 9, 99, 107, 166, 210,
211, 214, 233, 253
assistance, 77, 212, 236, 239, 240
atoms, atomistic, 62, 145, 157, 164,
168, 181,183, 184, 186, 187, 188
authoritarian, 52, 95, 167, 247
authoritative, 66, 223, 224, 231
authority, 8, 22, 23, 34, 51, 65, 92,
94, 66, 104, 145, 152, 154, 165,
175, 177, 223, 224, 225, 231,
232, 234, 235, 236,237, 238, 239
authorize, 143, 165
B capitalist, capitalistic, 63, 82, 155,
bankrupt, 3, 244, 245
bankruptcy, 79, 80, 84, 169, 206,
218, 244, 245, 253
bankruptcy-induced, 244
beneficial, 97, 203, 240
beneficiary, 122, 127, 142
benefit, 3, 31, 34, 65, 68, 73, 75, 82,
84, 102, 103, 109, 110, 120, 122,
125, 126, 127, 130, 138, 139,
140, 152, 159, 160, 172, 173,
175, 183, 184, 185, 186, 187,
188, 189, 191, 192, 195, 206,
207, 208, 220, 229, 238, 240,
246, 264
benefit-based, 138
benevolence, 153, 212, 248
birthright, 162
Subjects 277
bliss, 20, 136
budget, 63, 92, 106, 122, 125, 172,
192, 238, 250
budget-neutral, 192
burden-sharing, 141
bureaucracy, 154, 162, 164, 165
bureaucrat, bureaucratic, 33, 162,
163, 164, 165, 202, 217
business, 5, 58, 78, 84, 93, 105, 106,
156, 159, 166, 203, 210, 215,
219, 236, 244, 245, 252
businessman, 41
C
capital, 33, 50, 73, 74, 81, 85, 120,
168, 173, 214, 216, 217, 218,
219, 243, 245
capitalism, 2, 5, 12, 69, 153, 155,
156, 157, 160, 161, 177, 178,
180, 200, 213, 254
161, 168, 174, 178, 179, 199,
206, 213, 232
caritas, 69
cartels, 103, 156, 157, 252
Catholic, 1, 2, 10, 11, 17, 18, 19, 21,
22, 151, 153, 157, 174, 190, 194,
200, 209, 210, 221, 223, 235,
236, 241, 244, 245, 247, 248,
254, 257, 258, 259, 262, 265
causality, 98
cause, 18, 69, 97, 100, 129, 133,
153, 207, 240
caused, 80, 213, 215, 239
charitable, 68, 173, 185, 210
charity, 68, 210, 236, 253, 257
child-care, 175
child-credit, 195
278 Indices
church, 4, 9, 10, 17, 73, 74, 141,
174, 200, 210, 219, 254
church-sponsored, 174
citizen, 30, 49, 53, 55, 59, 60, 61,
64, 93, 99, 100, 101, 105, 106,
110, 118, 136, 137, 138, 142,
152, 153, 163, 164, 170, 188,
189, 210, 237, 238, 239, 242, 243
citizenry, 210
citizens-consumers, 106
citizen-voters, 106
citoyen, 59
class, 21, 28, 52, 61, 62, 68, 94, 95,
156, 156, 162, 163, 165, 170,
173, 199, 200, 238, 249, 250
club, 113, 115, 145, 146, 219, 237,
238, 251
coefficient, 218, 243
coercion, 109, 113, 138, 139
coercive, 63, 139, 143
collective, 2, 7, 83, 84, 113, 115,
116, 117, 118, 119, 127, 132,
135, 140, 141, 142, 144, 153,
175, 181, 182, 188, 189, 191,
194, 195, 219, 237, 242
collectivity, 114, 115, 140, 156, 188
commodity, 58, 129, 241, 242
communal, 69, 92, 156
communicate, communication, 20,
77
communism, 59, 245
communist, 1, 2, 11, 58, 59, 166,
200, 208, 209, 210, 211, 217,
219, 220, 244
communitarian, 176, 180
community, 6, 22, 26, 33, 45, 48,
51, 82, 84, 87, 134, 145, 157,
167, 168, 170, 175, 176, 177,
187, 204, 211, 216, 217, 218,
219, 211, 241, 249
commutative, 234
competing, 4, 73, 245, 250
competition, 50, 66, 73, 77, 79, 81,
84, 120, 152, 156, 157, 168, 208,
244, 245
competitive, 4, 6, 66, 71, 76, 77, 79,
80, 85, 103, 105, 106, 156, 180,
190, 202, 203, 208, 214, 228,
233, 241, 252, 253, 254
competitiveness, 208
compliance, 98
compounding, 182
compulsion, 41, 65, 67, 169, 203
compulsory, 94, 138, 139
concept, 1, 2, 4, 7, 8, 9, 24, 27, 40,
42, 44, 48, 54, 55, 64, 65, 66, 68,
74, 75, 82, 83, 85, 86, 88, 91, 92,
94, 95, 96, 97, 98, 100, 102, 106,
107, 108, 110, 111, 113, 114,
115, 116, 117, 118, 119, 120,
121, 122, 123, 124, 125, 126,
127, 128, 129, 131, 132, 133,
135, 137, 139, 140, 144, 145,
146, 151, 168, 165, 167, 774,
186, 188, 189, 190, 215, 216,
234, 237, 238, 242, 249, 250,
251, 252, 253
conception, 22, 29, 32, 123, 152,
209, 242
conceptual, 8, 92, 108, 109, 111,
124, 127, 215
conceptualize, 97, 125, 173, 237
condition, 57, 59, 67, 77, 98, 99,
100, 101, 102, 103, 105, 106,
128, 137, 141, 153, 187, 200,
206, 207, 235, 236, 242, 244, 245
conditional, 21, 74, 80
conflict, 27, 53, 62, 86, 87, 107,
178, 245, 250
conflicting, 62, 153, 164
conformity, 56, 105
congruent, 108
consensus, 91, 177, 235, 243
consent, 50, 51, 168
consequence, 4, 18, 25, 28, 56, 57,
59, 79, 83, 93, 97, 100, 114, 117,
121, 128, 134, 139, 156, 157,
158, 159, 160, 165, 168, 169,
179, 184, 191, 205, 210, 217,
224, 227, 243, 253, 254
constitution, 29, 44, 60, 79, 160,
162, 163, 166
constitutional, 2, 49, 59, 108, 144,
155, 161, 165, 178, 179, 254

constraint, 97, 140, 176
consumable, 228
consume, 97, 114, 118, 119, 132,
177, 178, 182, 183, 189, 202,
230, 237
consumer, 7, 8, 9, 23, 24, 66, 77, 92,
93, 94, 95, 96, 97, 98, 99, 100,
101, 102, 105, 106, 108, 109,
111, 115, 118, 122, 123, 125,
128, 129, 131, 132, 133, 136,
140, 144, 169, 180, 183, 186,
188, 189, 205, 208, 211, 228,
229, 230, 231, 233, 237, 238, 250
consumers-citizens, 250
consumption, 6, 7, 8, 23, 55, 56, 57,
64, 66, 94, 97, 110, 114, 115,
118, 120, 121, 122, 124, 125,
126, 127, 128, 129, 130, 131,
134, 135, 182, 184, 186, 188,
189, 193, 202, 205, 208, 223,
226, 228, 229, 230, 231, 232,
233, 237, 238, 239, 242
consumption-externality, 110, 120
contraception, 124
contraceptive, 124, 125
contract, 45, 81, 101, 152, 215, 245,
252
contractarian, 158
contracting, 217
contractual, 32
co-operation, 212, 213, 220
co-operative, 217, 219, 220
co-ordinate, co-ordination, 226,
230, 231, 232, 234
co-payments, 184
co-produces, 133
cost, 19, 21, 23, 64, 65, 84, 114,
122, 124, 126, 127, 128, 129,
130, 131, 133, 134, 135, 137,
138, 140, 141, 142, 145, 175,
182, 183, 184, 185, 186, 188,
189, 190, 194, 202, 208, 211,
215, 233, 237, 238, 239, 240, 248
cost/benefit-calculus, 186
cost-benefit, 84
costless, 253
costly, 213, 217
Subjects 279
credit, 5, 35, 82, 93, 104, 142, 191,
192, 193, 194, 195, 214, 248
credited, 6, 32, 93, 104, 238, 248
creditor, 245
customs, 47, 214
D
deadweight, 136
debtor, 245
debts, 104
decentralization, 219
decentralized, 125, 136, 219
decrease, 19, 137, 142, 184, 186,
188, 224, 228
decreasing, 23, 126, 128, 129, 131,
133, 135, 228
definition, 7, 8, 34, 43, 44, 56, 64,
91, 94, 95, 99, 108, 111, 112,
117, 118, 119, 120, 121, 123,
126, 133, 134, 184, 205
demand, 5, 19, 59, 66, 71, 76, 93,
113, 121, 128, 129, 132, 137,
157, 176, 187, 189, 194, 204,
208, 224, 232, 239, 240, 251
demanded, 33, 82, 129, 201, 214,
237
demanding, 48, 129
demand-revealing, 137
demands, 2, 3, 49, 61, 62, 84, 105,
111, 139, 140, 161, 163, 172,
175, 176, 177, 180, 189, 199,
206, 220, 223, 224, 242, 247,
251, 254
demerit, (de)merit, 8, 66, 97, 100,
122, 138, 140, 145, 172, 238
demeritorious, (de)meritorious, 23,
145, 238
democracy, 4, 5, 25, 28, 29, 53, 75,
79, 81, 93, 102, 151, 153, 155,
158, 159, 160, 175, 178, 179,
205, 254
democratic, 5, 25, 52, 60, 61, 69, 78,
108, 111, 138, 155, 160, 161,
174, 175, 177, 178, 179, 180
depressed, 240
280 Indices
depression, 93, 156, 207, 252
deprivation, 87, 185
deprive, 22, 26, 57, 77, 87, 146, 173,
179, 185, 206, 207, 236, 253
de-regulated, 244
dialectic, dialectical, 27, 39, 44, 47,
171
dictatorial, 78
dictatorship, 78
disabilities, 85
disabled, 10, 85, 232, 242, 252
discounted, 183, 184
discourse, 2, 4, 9, 10, 11, 15, 17, 18,
19, 20, 21, 22, 23, 24, 223, 246,
254
dis-economics, 23
diseconomy, 127, 131
disincentive, 141, 142
disutility, 100
divisibility, 237
divisible, 121, 224, 225
division, 57, 77, 82, 107, 172, 173,
248
dutiful, 213
duty, 9, 19, 34, 41, 49, 50, 55, 62,
93, 120, 136, 155, 167, 177, 202,
219, 220, 235, 249
dynamic, 159
E 25, 33, 34, 35, 39, 46, 49, 52, 64,
earn, 25, 33, 51, 67, 68, 87, 139,
145, 171, 173, 182, 191, 192,
193, 184, 207, 224, 242
economic, 1, 2, 3, 4, 5, 6, 7, 8, 9, 10,
11, 17, 18, 19, 20, 21, 22, 23, 24,
25, 32, 33, 34, 35, 39, 47, 48, 49,
50, 51, 52, 54, 57, 58, 60, 62, 63,
64, 65, 66, 67, 69, 71, 72, 73, 75,
76, 78, 79, 80, 81, 83, 84, 85, 87,
88, 91, 92, 93, 94, 95, 96, 97, 98,
99, 100, 101, 103, 104, 105, 106,
107, 108, 111, 114, 115, 116,
121, 122, 123, 124, 125, 126,
128, 130, 132, 134, 135, 136,
137, 138, 140, 142, 143, 145,
146, 151, 152, 153, 154, 155,
156, 157, 158, 159, 160, 161,
162, 163, 166, 167, 168, 170,
171, 172, 173, 174, 175, 176,
177, 178, 179, 180, 183, 186,
190, 194, 195, 200, 201, 202,
203, 204, 205, 207, 208, 209,
210, 212, 213, 214, 215, 216,
217, 218, 219, 220, 223, 224,
225, 230, 231, 232, 233, 234,
235, 236, 238, 239, 240, 241,
242, 243, 244, 246, 247, 248,
249, 250, 252, 253, 254, 259
economically, 21, 63, 75, 84, 92, 98,
99, 102, 104, 114, 129, 137, 138,
140, 142, 183, 184, 195, 199,
213, 215, 216, 232, 233, 238,
240, 250, 252
economically-justified, 238
economico-political, 153
economics, 1, 2, 4, 9, 10, 11, 17, 23,
25, 35, 39, 40, 46, 47, 48, 49, 51,
53, 64, 72, 88, 91, 92, 95, 96,
101, 115, 120, 134, 138, 140,
158, 180, 223, 225, 243, 244,
245, 246, 248, 252, 254
economicus, 50, 170
economism, 210
economist, 2, 4, 6, 7, 8, 9, 10, 24,
65, 66, 72, 75, 76, 81, 91, 92, 93,
95, 99, 102, 103, 105, 107, 108,
109, 111, 113, 117, 118, 119,
125, 126, 130, 161, 167, 169,
187, 200, 203, 213, 214, 216,
218, 219, 223, 224, 229, 233,
248, 249
economy, 1, 2, 3, 4, 8, 9, 10, 11, 17,
18, 19, 22, 23, 24, 32, 39, 51, 53,
55, 58, 59, 63, 66, 68, 69, 76, 77,
78, 79, 82, 85, 91, 92, 100, 126,
127, 128, 131, 133, 136, 140,
146, 153, 156, 159, 161, 171,
174, 175, 176, 177, 180, 182,
183, 199, 200, 201, 202, 204,
205, 206, 207, 208, 209, 210,
211, 212, 213, 214, 218, 219,

220, 223, 225, 226, 231, 232,
233, 235, 236, 239, 240, 242,
243, 244, 245, 246, 247, 248,
249, 253, 254
educate, 4, 32, 42, 51, 61, 62, 110,
159, 164, 165, 170, 216
education, 8, 9, 23, 58, 59, 66, 94,
97, 106, 107, 108, 109, 110, 112,
165, 174, 175, 183, 180, 194,
206, 213, 215, 232, 238, 240,
242, 243, 249, 252, 262
educational, 75, 106
educative, 162, 173
effective, 4, 6, 10, 20, 24, 29, 30, 45,
50, 49, 59, 121, 124, 125, 140,
161, 202, 210, 211, 217, 220,
229, 239, 243, 245, 254
effectiveness, 29, 124, 140
effectually, 204
efficacy, 254
efficiency, 2, 3, 5, 55, 61, 68, 70, 74,
75, 93, 94, 95, 96, 105, 115, 128,
129, 149, 165, 182, 183, 201,
202, 203, 204, 207, 209, 210,
218, 221, 223, 227, 230, 232, 243
efficient, 1, 3, 6, 9, 13, 55, 63, 67,
68, 73, 81, 83, 85, 89, 105, 113,
118, 122, 171, 172, 190, 199,
200, 201, 202, 203, 206, 208,
209, 213, 216, 218, 219, 220,
222, 223, 225, 227, 230, 234, 244
egalitarian, 232
elasticity, 224
elite, 53, 54, 124, 125, 159, 209,
210, 211, 219, 220
empirical, 106, 134, 136, 145, 190,
210
empiricism, 98
empiricists, 98
employ, 66, 239, 245
employees, 31, 156, 184
employer, 19, 162, 184, 249
employment, 18, 85, 93, 121, 174,
175, 235, 239, 241, 244
encyclical, 17, 191, 209
endowments, 232
Subjects 281
Enlightenment, 4, 25, 26, 27, 28,
158
entitle, 6, 52, 94, 105, 116, 164, 201
entitlement, 93, 172
entrepreneur, 69, 104, 136, 162,
218, 232, 237, 245
entrepreneurial, 19, 21, 218, 243
entrepreneurship, 244
environment, 10, 156, 175, 211,
213, 214, 215, 228, 249, 252,
254
epistemology, epistemological, 107,
114, 116, 117
equal, 64, 74, 93, 96, 118, 119, 134,
137, 161, 172, 183, 193, 223,
229, 230, 231, 236, 242, 243
equality, 109, 139, 221, 231, 243
equalizes, 242
equilibrium, 49, 85, 115, 136, 144
equitable, 18
equity, 193
essence, 42, 46, 47, 51, 60, 76, 133,
167, 168, 171
essential, 4, 21, 29, 43, 48, 49, 93,
107, 118, 131, 164, 182, 199,
200, 204, 205, 235
ethical, 1, 2, 3, 4, 9, 10, 11, 17, 20,
24, 44, 47, 48, 49, 50, 51, 52, 59,
62, 69, 78, 91, 92, 96, 100, 102,
105, 107, 113, 145, 155, 157,
158, 165, 167, 168, 169, 180,
203, 205, 220, 225, 233, 246,
252, 254
ethicists, 233
ethics, 9, 11, 17, 44, 72, 88, 96, 105,
153, 156, 157, 158, 175, 176,
178, 179, 180, 223, 235, 246, 252
eudaemonic, 41, 42, 43
evil, 49, 179, 200
excludable, excludability, 124
exclude, 29, 30, 84, 87, 111, 118,
129, 130, 133, 141, 209, 237
exclusion, 40, 64, 97, 114, 118, 121,
123, 128, 129, 130, 133, 134,
135, 141, 186, 189, 251
exclusionary, 238
ex-communist, 255
282 Indices
expenditures, 208, 239
expense, 3, 86, 140, 160, 163, 191,
194
exploitation, exploiting, 133, 217
exploits, 160
exports, 77
expropriated, 140
expropriation, 100
externalities, 65, 113, 114, 115, 122,
126, 127, 130, 133, 134, 171, 208
externality, 55, 55, 115, 122, 124,
128, 129, 134, 135
F government, 1, 2, 3, 4, 5, 6, 7, 8, 9,
factor, 67, 76, 130, 135, 145, 163,
183, 206, 207, 216, 225, 226,
228, 230, 232, 242, 244, 254,
fair, 1, 19, 30, 66, 105, 138, 166,
170, 207, 211, 233, 242, 254
fairness, 108, 130, 165, 234, 241
fair-trade, 66, 166, 211, 233
famine, 84, 143, 211, 251
far-sighted, 179
feudal, 39
for-profit, 139
freedom, 3, 10, 11, 24, 25, 27, 31,
32, 39, 40, 41, 42, 43, 44, 45, 46,
48, 50, 53, 54, 55, 59, 60, 61, 64,
68, 69, 71, 73, 74, 75, 78, 79, 80,
81, 82, 83, 85, 86, 88, 103, 106,
115, 138, 143, 151, 153, 158,
170, 171, 172, 173, 174, 175,
176, 177, 179, 182, 202, 203,
204, 205, 210, 230, 235, 236,
246, 248, 250, 252
freely, 50, 87, 115, 170, 205
free-market, 39, 95, 179, 202, 205,
207, 210
free-rider, 64, 109, 130, 139
free-riding, 130, 138
frictionless, 182
G 154, 155, 156, 157, 158, 159,
GDP, 217, 218, 243
generosity, geneorus, 79, 123, 125,
204
GNP, 47
goal, 3, 9, 10, 44, 67, 68, 69, 80, 86,
95, 124, 141, 142, 154, 159, 161,
167, 168, 170, 171, 175, 176,
177, 194, 201, 202, 204, 223,
233, 235, 241, 242, 243, 254
God, 43, 45, 105, 158, 175, 190, 234
God-ordained, 158
govern, 125, 154, 168, 245
governance, 211, 216, 217, 218,
219, 220, 243
10, 11, 19, 23, 24, 29, 31, 33, 53,
55, 60, 63, 64, 65, 66, 68, 69, 71,
73, 75, 76, 77, 78, 80, 82, 84, 88,
92, 93, 94, 95, 96, 97, 98, 99,
101, 103, 104, 105, 106, 108,
109, 111, 113, 115, 116, 117,
119, 121, 123, 124, 131, 136,
137, 138, 139, 140, 141, 143,
144, 145, 146, 151, 154, 155,
146, 148, 152, 153, 154, 155,
172, 177, 181, 187, 188, 189,
191, 194, 210, 211, 213, 214,
216, 217, 218, 219, 220, 237,
238, 239, 245, 246, 247, 248,
249, 250, 251, 252, 253, 254
governmental, 8, 9, 28, 30, 34, 65,
75, 91, 92, 96, 101, 102, 104,
111, 113, 116, 127, 138, 139,
145, 146, 154, 155, 185, 186,
211, 213, 214, 216, 233, 249,
250, 254
government-controlled, 55
government-imposed, 113
government-provided, 66
grand-utility, 231, 232
group, 4, 5, 7, 28, 31, 33, 49, 52, 69,
72, 75, 76, 82, 84, 93, 103, 104,
105, 106, 111, 116, 126, 130,
133, 137, 139, 140, 141, 142,
143, 144, 146, 151, 152, 153,
160, 162, 163, 164, 166, 170,
176, 177, 178, 179, 180, 181,

184, 185, 187, 192, 209, 211,
214, 216, 219, 246, 251, 254
group-formation, 157
guild, 33, 219
H 134, 136, 137, 144, 145, 160,
handicap, 85, 86, 87, 207, 242
happiness, 42, 43, 194
happy, 24, 43, 49, 60, 64
harm, 8, 34, 102, 139, 160, 179,
205, 207, 240
harmful, 5, 72, 77, 156
health, 75, 124, 139, 140, 174, 181,
183, 184, 188, 194, 211, 213,
215, 223, 252
health-care, 75, 124, 215
healthy, 85, 87, 181, 190
heritage, 215
hierarchy, hierarchical, 31, 79, 97,
107
high-mindedness, 204
holding out, 126, 130, 133
homeless, 174
homogeneous, 217, 225, 232
hope, 21, 43, 49, 59, 69, 85, 87, 106,
107, 136, 144, 146, 155, 161,
162, 163, 164, 167, 171, 175,
179, 183, 209, 238, 244, 245, 254
hopefully, 96
household, 114
human, 2, 3, 18, 19, 20, 22, 26, 42,
43, 44, 48, 49, 51, 54, 55, 57, 58,
59, 61, 69, 71, 76, 80, 81, 82, 83,
103, 105, 106, 107, 111, 114,
120, 125, 152, 156, 160, 161,
167, 169, 170, 171, 175, 176,
177, 180, 190, 200, 203, 205,
206, 209, 212, 214, 216, 217,
219, 232, 234, 235, 239, 240, 246
humane, 1, 2, 9, 91
humanitarian, 178
humanity, 22, 158
humanizing, 206
hunger, 3, 185, 188, 194
Subjects 283
I
ideal, 3, 10, 25, 27, 35, 41, 53, 54,
60, 76, 77, 103, 110, 111, 113,
114, 116, 119, 120, 121, 125,
161, 162, 165, 166, 173, 186,
190, 242, 250, 254
ideal concept, 110, 113, 114, 120,
121, 125, 137, 144, 186, 190, 250
ideology, 19, 54
ignorance, 35, 138, 139, 152
IMF, 218
impersonal, 65, 85, 86
import, 158
income, 5, 18, 20, 21, 33, 63, 69, 79,
93, 125, 139, 152, 173, 175, 177,
185, 191, 192, 193, 194, 195,
201, 203, 224, 234, 242, 243
income-earning, 653
individualism, 4, 25
individualistic, 92
individuality, 46, 50, 167, 209, 246
individual, 1, 4, 7, 21, 23, 24, 25,
26, 27, 28, 29, 30, 31, 32, 33, 34,
35, 46, 47, 48, 50, 51, 52, 53, 54,
57, 59, 60, 61, 62, 63, 65, 66, 67,
69, 73, 74, 75, 80, 81, 82, 83, 84,
85, 86, 92, 93, 95, 96, 97, 98,
102, 103, 105, 107, 108, 109,
110, 111, 119, 122, 130, 136,
137, 141, 142, 143, 144, 145,
151, 152, 156, 157, 159, 161,
162, 163, 164, 167, 168, 169,
170, 171, 172, 175, 177, 179,
181, 183, 184, 185, 186, 187,
188, 189, 194, 199, 202, 204,
205, 206, 207, 208, 209, 210,
211, 235, 236, 237, 239, 242,
246, 248, 249, 253
indivisibility, 23, 126, 128, 131
industrial, 158, 199, 200
industriousness, industrious, 78, 79,
159
industry, 50, 72, 81, 104, 120, 133,
168, 214, 215
284 Indices
inefficiency, 5, 65, 104, 125, 175,
179, 216, 218, 245, 254
inefficient, 2, 5, 11, 30, 138, 155,
188, 195, 202, 218, 226, 228,
236, 244
inelastically, 235
inequality, 18, 60, 69, 152, 175, 218,
219, 243
inequitable, 175
inflation, 85, 93, 104, 105, 157, 182,
207
inflation-free, 182
inheritance, 18, 21, 163, 164, 232,
242
injustice, 113, 175, 202, 208, 225,
254
input, 225, 226, 227, 228, 230, 232,
237
institutional, 1, 9, 11, 25, 31, 32, 47,
52, 61, 69, 84, 91, 92, 96, 101,
108, 116, 140, 144, 153, 161,
162, 167, 175, 176, 177, 213,
214, 219, 220, 233, 234, 235,
243, 244, 245, 252, 253, 254
institution, 1, 2, 3, 4, 17, 22, 26, 27,
39, 47, 48, 49, 50, 51, 52, 54, 55,
60, 63, 64, 69, 71, 76, 79, 81, 82,
83, 96, 103, 136, 142, 164, 167,
176, 177, 190, 199, 202, 205,
206, 208, 209, 210, 211, 218,
219, 220, 233, 244, 245, 246, 252
interconnection, 2, 11, 17, 254
interdependence, 16, 51, 107, 184
interdisciplinary, 1, 10
interest, VII, 2, 4, 5, 7, 11, 30, 31,
35, 43, 50, 51, 52, 53, 54, 59, 60,
62, 66, 72, 81, 87, 115, 119, 120,
130, 136, 137, 138, 139, 141,
142, 143, 145, 151, 152, 153,
154, 155, 156, 157, 158, 159,
160, 161, 162, 163, 164, 165,
166, 168, 170, 171, 178, 179,
180, 182, 183, 185, 189, 202,
204, 207, 208, 210, 212, 213,
220, 223, 235, 238, 245, 248,
249, 250, 251, 254
interested, 2, 10, 11, 84, 141, 142,
165, 181, 184, 202, 223, 251
interest-group, 153, 156, 160
interesting, 23, 77, 100, 138, 215
interest-sensitive, 207
invisible, 4, 33, 50, 51, 136, 169,
204, 206, 208, 248
IRS, 193, 195, 262
J
job, 67, 102, 167, 172, 224, 232,
234, 236, 239, 240, 244
joblessness, 239, 240
joint, 6, 64, 103, 116, 126, 127, 128,
129, 130, 131, 138, 159, 185,
187, 189, 192, 193, 195, 231,
237, 242
jointness, 23, 128, 132
justice, 5, 9, 18, 22, 45, 50, 63, 72,
73, 77, 93, 102, 106, 120, 153,
155, 157, 165, 168, 171, 172,
175, 176, 177, 192, 193, 202,
209, 214, 225, 232, 234, 240,
247, 249, 252, 254
L
labor, 18, 19, 20, 21, 33, 46, 49, 55,
56, 57, 58, 59, 73, 74, 77, 79,
157, 159, 171, 172, 173, 176,
183, 193, 199, 200, 206, 224,
225, 226, 228, 232, 242, 244,
248, 249
laborer, 225, 226, 227
labor-intensive, 77
labor-saving, 159
labor-unions, 159
labour, 57, 60, 77, 82
laissez-faire, 153
legal, 18, 47, 65, 81, 84, 86, 101,
104, 105, 135, 143, 166, 168,
171, 176, 199, 210, 211, 213,
218, 243, 244, 245
legalistic, 53
 Subjects 285

legality, 81 marginal, 23, 72, 80, 156, 168, 169,

legislate, 35, 242 180, 216, 228, 229, 230
legislation, 5, 18, 19, 20, 66, 84, marginalists, 103
100, 105, 108, 139, 142, 143, marginalized, 177, 247
154, 155, 162, 166, 195, 214, market, 2, 3, 4, 6, 8, 9, 10, 11, 23,
224, 233, 250, 251, 253 25, 32, 40, 48, 49, 50, 51, 53, 54,
legislative, 144, 154, 155, 161, 162, 55, 58, 59, 60, 61, 62, 63, 64, 65,
163, 164, 205 66, 67, 68, 69, 71, 72, 75, 76, 77,
legislator, 35 78, 79, 80, 81, 82, 83, 84, 85, 86,
legislature, 31, 62 87, 88, 91, 94, 96, 97, 101, 102,
legitimacy, 19, 21, 26, 28, 29, 30, 103, 104, 105, 106, 111, 120,
67, 95, 146, 155, 166 121, 122, 123, 124, 127, 130,
legitimate, 1, 6, 8, 20, 28, 29, 34, 39, 135, 136, 140, 151, 153, 156,
47, 51, 52, 53, 55, 88, 96, 105, 157, 161, 162, 165, 166, 167,
116, 120, 145, 157, 170, 178, 168, 169, 170, 171, 172, 173,
180, 187, 212, 214, 216, 248, 254 175, 178, 179, 180, 186, 187,
legitimize, 5, 28, 29, 30, 54, 67, 178, 190, 191, 194, 199, 200, 201,
211, 212, 219 202, 203, 204, 205, 206, 207,
leisure, 175 208, 209, 210, 211, 212, 213,
liabilities, 5 214, 216, 217, 218, 219, 220,
liberal, 76, 78, 79, 84, 103, 105, 203 224, 235, 241, 243, 244, 245,
liberalism, 72, 153, 155, 157, 158 250, 252, 253, 254
liberalization, 77 market failure, 65, 105, 111, 213,
liberate, 61, 84, 171, 172, 246 216, 217
libertarian, 7, 116, 189, 233 market-generated, 202
liberty, 21, 43, 49, 51, 72, 102, 120, mathematical, 82, 134, 136, 144,
151, 152, 153, 175, 202, 249, 223, 224, 243
250, 251 maximally, 230
licentiousness, 102 maximization, 225
livelihood, 171 maximized, 157
lobby, 159, 251 maximizers, 229
lord, 202 maximum, 23, 139, 225, 226, 230,
low-cost, 66, 94, 115 250
low-priced, 94 mechanistic, 75
loyalty, 29, 201 mercantile, 1
lumpiness, 23, 126, 131, 133 mercantilism, 51, 103, 246
mercantilist, 39, 72, 202
merit, 2, 4, 6, 8, 9, 10, 17, 24, 52,
M 66, 68, 75, 91, 92, 94, 95, 96, 97,
98, 99, 100, 102, 103, 104, 105,
macro-economic, 208 106, 107, 108, 109, 110, 111,
macro-events, 84 113, 114, 115, 121, 122, 123,
macro-phenomenon, 84 124, 135, 138, 139, 140, 143,
magnanimity, 79 146, 181, 189, 190, 191, 192,
margin, 229 193, 211, 214, 215, 237, 238,
239, 240, 241, 242, 249, 250,
251, 252, 253
286 Indices

merit-based, 242 240, 241, 242, 243, 245, 246,

meritorious, 8, 23, 66, 108, 122, 247, 248, 249, 251, 253, 254
123, 138, 140, 143, 189, 235, moral-ethical, 167
241, 242 morality, 9, 11, 24, 44, 46, 47, 49,
meritoriousness, 8 62, 63, 155, 167, 204, 210
meritorisation, 121, 139 motivate, 20, 119, 137, 143, 159,
Meritorisierung, 108, 264 181, 183, 184, 185, 189, 195,
Meritorisierungsinstrument, 109 228, 233, 241
meritorize, 115 motivation, 153, 164, 177, 186, 203,
metaphysical, 4, 45, 54, 55, 158 211, 212, 213, 217, 233, 241, 255
method, 5, 7, 9, 10, 11, 54, 60, 65, motivational, 202, 203
66, 93, 97, 98, 99, 100, 102, 106, motive, 19, 41, 82, 135, 171, 195,
107, 109, 115, 121, 125, 129, 199, 204, 208, 213, 217, 219,
136, 145, 154, 163, 166, 173, 220, 233
181, 191, 192, 193, 195, 201, multiple user, 126, 128, 131, 134,
208, 217, 240, 249, 251 135
methodological, 17, 20, 92
methods, 1, 2, 65, 85, 92, 93, 108,
109, 112, 115, 141, 143, 163, N
167, 190, 191, 194, 208, 223, 251
micro-economic, 106, 121, 208
nation, 114, 163, 175, 176, 177, 178,
micro-economics, 121
193, 213, 215, 234, 240
micro-level, 84
national, 18, 22, 47, 63, 76, 77, 96,
micro-suggestions, 244
101, 102, 114, 118, 131, 139,
mind, 44, 50, 57, 59, 66, 98, 167,
140, 154, 176, 182, 187, 201
206, 240, 252
natural, 2, 3, 4, 33, 41, 42, 49, 58,
minority, 66, 110, 111, 138, 175,
62, 71, 72, 73, 76, 80, 88, 103,
190, 215
120, 142, 158, 168, 170, 172,
misery, 19, 152
175, 177, 202, 204, 214, 219,
monetary, 93, 94, 104, 137, 145,
234, 245, 246, 247, 248, 249,
154, 186, 202, 210
250, 251, 252
money, 6, 64, 65, 78, 87, 94, 95,
nature, 1, 10, 11, 28, 40, 42, 49, 54,
104, 138, 145, 182, 185, 194,
55, 56, 58, 59, 61, 62, 71, 72, 73,
224, 253
74, 76, 118, 120, 122, 123, 133,
monopolistic, 76, 103, 105, 107
145, 161, 167, 171, 178, 203,
monopolists, 100
207, 209, 217, 235, 236, 245,
monopoly, 65, 104, 214
246, 248
moral, VII, 1, 4, 5, 10, 11, 17, 18,
neoclassical, 225, 243
19, 20, 21, 22, 23, 24, 25, 27, 46,
neo-classical, 183, 185, 219
47, 48, 49, 50, 62, 63, 69, 74, 78,
neo-liberal, 2, 6, 21, 71, 72, 75, 76,
79, 86, 97, 98, 101, 105, 108,
78, 79, 80, 82, 84, 85, 87, 88,
140, 152, 155, 167, 168, 171,
100, 103, 105, 106, 214, 252, 253
175, 176, 179, 180, 181, 187,
neo-liberalism, 71, 72, 76, 85
190, 191, 194, 195, 203, 204,
non-appropriability, 7, 126, 133
205, 207, 210, 212, 217, 219,
non-confederate, 160
223, 233, 234, 235, 238, 239,
non-cooperative, 115, 136
 Subjects 287

non-crowdedness, 186 224, 225, 228, 229, 230, 232,

non-economic, 93, 135, 213 243, 248, 250
non-economists, 226 numerous, 60, 187
non-egoistic, 220 nurture, 3, 78, 85
non-enforceability, 7 nutrition, 111, 114, 121, 176
non-excludability, 118
non-exclusion, 113, 114, 118, 126,
130, 133, 134, 135, 141, 142, O
186, 188
non-exclusive, 118, 133
obedience, 29
non-existent, 142
obey, 7, 60, 68, 115, 199, 202, 204,
non-governmental, 116, 211
225, 248, 254
non-ideological, 154
object, 28, 40, 41, 42, 43, 44, 45, 46,
non-members, 251
54, 55, 56, 57, 59, 73, 75, 98,
non-owners, 102
116, 123, 154, 164, 189
non-packeagability, 133
objectification, 103
non-paying, 118, 133, 134, 142
objectified, 56
non-private, 96, 97
objection, 21, 28, 35, 65, 73, 74,
non-provision, 141
108, 116, 117, 126, 140, 250
non-public, 114
objectionable, 193
non-refundable, 5
objective, 3, 7, 26, 28, 29, 32, 39,
non-rejectability, 126
40, 44, 47, 52, 56, 69, 87, 114,
non-residents, 131
119, 171, 178, 205, 208
non-rival, 6, 7, 97, 114, 118, 126,
objectivity, 42, 66, 181
128, 129, 131, 134, 135, 186, 188
obligation, 65, 77, 93, 98, 189, 219,
non-rivalness, 6, 7, 97, 114, 118,
240
126, 128, 129, 131, 134, 135, 186
obligatory, 8, 23, 97, 104, 107, 114,
non-rivalry, 6, 188
238, 252
non-self-interest, 213, 219
obliged, 29, 53, 73
non-subtractability, 126, 131
obnoxious, 97
non-subtractable, 129, 132
obstacle, 139, 215
non-work, 249
obtain, 9, 47, 66, 125, 132, 164, 191,
norm, 2, 18, 22, 24, 95, 168, 216,
225,
218, 219
obvious, 31, 41, 45, 49, 52, 57, 72,
normal, 63, 123, 152, 160, 166, 182,
120, 126, 205, 223, 225
187, 208, 209, 216, 217
occasion, 59, 158, 212
normative, 2, 8, 23, 29, 60, 92, 94,
occupation, 61, 160, 171
95, 96, 97, 98, 103, 232
occupy, 145, 160
notion, 4, 26, 27, 28, 29, 121
offer, 32, 33, 35, 49, 124, 129, 130,
novel, 82, 175, 247
134, 139, 172, 228
nuisance, 59, 140
office, 60, 193, 195
nullify, 87
official, 33, 98, 165, 210, 215, 235
number, 9, 21,43, 91, 116, 121, 133,
officialdom, 165
136, 142, 151, 159, 161, 165,
often-used, 121
171, 172, 185, 186, 201, 202,
one-sided, 9, 17, 24, 47, 175
204, 213, 216, 218, 219, 220,
288 Indices
ontology, 2, 49, 71, 72, 75, 88, 245,
248,
open, 6, 8, 71, 87, 107, 153, 172,
201, 216
open-ended, 87
opening, 88, 92, 189
operate, 24, 84, 202, 218, 228, 237,
244, 245, 253
operative, 177, 204, 216
opinion, 80, 82, 104, 106, 123, 163,
164, 178, 179, 193, 250, 252
opponents, 116
opportunity, 7, 8, 35, 67, 75, 78, 76,
100, 109, 113, 114, 115, 116,
119, 133, 134, 135, 136, 137,
141, 143, 144, 145, 158, 175,
179, 181, 182, 183, 186, 187,
188, 191, 194, 203, 205, 220,
234, 236, 237, 241, 242, 248
oppose, 49, 104, 107, 157, 159, 178,
189, 207, 217
opposite, 52, 81, 97, 164
opposition, 117, 172, 207, 210
oppression, 202
optimal, 6, 64, 84, 93, 96, 97, 100,
113, 115, 116, 120, 135, 136,
137, 138, 140, 143, 144, 181,
188, 200, 229, 237
optimality, 137, 140, 216
optimalization, 134
optimistic, 161, 171
optimorum, 83
optimum, 23, 64, 83, 88, 134, 136,
137
option, 58, 65, 137, 225, 230, 240
order, 2, 3, 4, 5, 6, 8, 9, 10, 17, 23,
25, 27, 28, 29, 32, 33, 34, 35, 39,
43, 44, 45, 47, 48, 49, 50, 51, 53,
56, 57, 58, 60, 62, 63, 65, 66, 67,
69, 71, 73, 74, 75, 76, 78, 81, 84,
85, 86, 95, 96, 103, 109, 111,
113, 115, 120, 122, 124, 125,
128, 130, 137, 138, 139, 140,
142, 152, 153, 154, 155, 156,
158, 159, 161, 162, 163, 166,
167, 168, 169, 170, 171, 174,
178, 179, 184, 187, 189, 191,
203, 205, 207, 215, 216, 218,
219, 220, 223, 224, 225, 232,
233, 242, 247, 249, 250, 252,
253, 254
ordered, 44, 174, 176
ordering, 23, 44, 48, 97, 107, 176
ordinal, 229
ordinary, 3, 130
organization, 5, 10, 28, 29, 52, 58,
61, 62, 63, 107, 145, 152, 156,
157, 159, 160, 162, 166, 173,
175, 178, 179, 200, 201, 204,
205, 206, 210, 213, 220, 236,
247, 248
organizational, 216, 243
organize, 4, 5, 9, 11, 18, 21, 48, 50,
62, 63, 68, 84, 113, 141, 144,
152, 154, 156, 157, 159, 170,
175, 189, 200, 201, 202, 205,
210, 254
origin, 6, 45, 58
original, 20, 42, 87, 92, 122, 152,
178, 210, 217, 227, 228, 229,
232,
ought, 8, 43, 78, 127, 162, 212
outcome, 30, 54, 96, 116, 137, 138,
172, 175, 176, 178, 208, 230,
232, 234, 248, 253
outlays, 193
output, 225, 226, 228, 237
outside, 45, 53, 63, 64, 131, 165,
166, 172, 178, 232
outsider, 57
outstanding, 135
overabundance, 143
overproduction, 173
over-provision, 84, 143, 251
overriding, 22
overrule, 138, 144
oversight, 10, 145, 146, 219
owe, 193
own, 2, 3, 17, 21, 24, 25, 27, 28, 31,
32, 33, 35, 42, 44, 47, 49, 50, 51,
53, 57, 58, 60, 62, 67, 68, 71, 72,
73, 74, 81, 82, 86, 87, 94, 109,
110, 120, 125, 139, 152, 154,
156, 158, 167, 168, 169, 170,

171, 172, 178, 180, 183, 184,
186, 188, 201, 204, 207, 209,
212, 225, 237, 249, 253
owner, 45, 73, 78, 84, 140, 203
ownership, 73, 102, 176, 177, 178,
180, 216, 232
P 156, 189, 206, 209, 214, 215,
package, 111
packageability, 133
packageable, 126, 129, 133
pain, 59, 185, 244
pair, 134
paradigm, 92
paradox, 8, 40, 81, 88, 109, 142,
171, 213
parallel, 4, 87
paralyzed, 53
parent, 110, 190, 193
Pareto-efficient, 138
Pareto-optimal, 127, 136
parish, 141
parliament, 6, 30
parochialism, 217
part, 1, 2, 5, 9, 10, 11, 18, 20, 22,
26, 39, 47, 50, 58, 61, 65, 68, 74,
82, 92, 95, 98, 100, 106, 107,
111, 117, 122, 143, 156, 160,
161, 177, 178, 185, 188, 192,
202, 204, 211, 214, 218, 224,
225, 232, 244
partial, 9, 63, 64, 74, 108, 110, 114,
122, 129, 138, 144, 171, 244,
251, 254, 255
participants, 22, 76, 103, 141, 152,
182, 202
participate, 28, 29, 30, 31, 32, 33,
53, 54, 67, 82, 85, 164, 176
participation, 29, 31, 34, 54, 75, 82,
83, 87, 130, 140, 145, 164, 175,
176, 177, 234
participatory, 175
particular, 1, 2, 6, 10, 20, 23, 28, 29,
41, 42, 45, 47, 50, 52, 54, 60, 61,
Subjects 289
67, 72, 81, 110, 114, 117, 131,
136, 137, 152, 154, 163, 164,
165, 166, 168, 170, 178, 188,
200, 201, 202, 203, 218, 224,
230, 237
particularism, 22
particularity, 45, 49, 54, 60, 163
particularly, 5, 55, 58, 77, 93, 121,
223, 248, 254
partly, 250
passage, 25, 30, 50, 53, 77, 120
pass, 5, 56, 57, 97, 195
passionate, 160
passions, 60
passive, 33, 208
past, 28, 29, 157, 183, 199
Pastoral, 9, 11, 22, 151, 153, 174,
175, 180, 234, 235, 239, 240,
241, 243, 257, 259, 263
patent, 105, 214
paternalistic, 167
patriotism, 162, 170
pattern, 154, 156, 157, 179, 216
paupers, 67, 173
pay, 3, 5, 6, 18, 62, 64, 65, 68, 82,
83, 84, 93, 102, 109, 118, 119,
124, 125, 129, 130, 136, 137,
138, 139, 140, 141, 142, 143,
145, 165, 169, 170, 173, 184,
185, 186, 188, 189, 190, 191,
192, 194, 200, 219, 237, 239,
240, 242, 251, 253
payable, 77
paying, 3, 129, 133, 141, 183, 185,
186, 251
payment, 6, 7, 64, 77, 87, 113, 130,
133, 138, 141, 142, 145, 172,
183, 202, 237, 249, 251
penalty, 66, 67, 94, 122, 207
penurious, 68, 201
percent, 104, 111, 119, 122, 182
percentage, 140, 145, 182, 184, 217,
224
perfect, 7, 50, 72, 77, 81, 115, 120,
134, 137, 168, 225, 228
290 Indices
perform, 3, 5, 29, 30, 57, 62, 93, 99,
120, 136, 157, 167, 173, 209,
210, 218, 219, 220, 236, 237, 250
performance, 92, 93, 120, 135, 136,
174, 194, 216
permanence, 33, 55, 57, 75, 123,
154, 173, 236
permissible, 121, 233
permit, 18, 28, 49, 50, 57, 138, 175,
179
person, 6, 7, 19, 32, 45, 50, 52, 54,
64, 74, 75, 80, 81, 85, 86, 87, 93,
102, 111, 114, 115, 119, 123,
129, 130, 133, 137, 141, 142,
152, 156, 167, 168, 171, 173,
175, 176, 177, 180, 183, 186,
194, 206, 212, 225, 229, 232,
243, 251
personal, 19, 43, 46, 50, 54, 75, 81,
83, 108, 142, 156, 164, 165, 183,
185, 188, 189, 193, 206, 212,
217, 248, 251
personality, 168
perspective, 22, 204
phenomena, 2, 65, 152, 172, 208
phenomenological, 7
phenomenon, 80, 98, 103, 129, 130,
133, 215, 229
philosopher, 2, 9, 71, 74, 86, 98,
111, 173, 187, 232, 248
philosopher-economist, 9
philosophic, philosophical, 1, 4, 10,
11, 25, 34, 39, 41, 53, 55, 58, 63,
69, 71, 72, 73, 74, 75, 76, 78, 81,
99, 103, 109, 111, 153, 155, 167,
168, 176, 209, 238
philosophy, 1, 4, 17, 26, 31, 32, 39,
41, 43, 44, 45, 49, 54, 60, 72, 75,
82, 98, 151, 165, 169, 177, 204,
210,
physiocratic, 39, 72, 103, 246
pin, 57, 82, 248
plan, 58, 78, 124, 158, 188, 215,
219, 244, 248
play, 5, 10, 47, 93, 96, 105, 116,
139, 146, 156, 162, 166, 173,
188, 200, 216, 220, 246
pleonexic, 157
polar, 118, 119, 120, 122
pole, 92, 110, 119, 120
police, 34, 69, 102, 154, 171, 187,
213, 214, 217
policies, 9, 10, 20, 22, 24, 100, 103,
108, 125, 154, 157, 159, 160,
211, 214, 236, 240
policy, 5, 20, 22, 79, 85, 92, 104,
120, 124, 125, 127, 154, 156,
178, 189, 210, 213, 215, 224, 253
political, 1, 2, 3, 4, 5, 7, 8, 10, 11,
17, 20, 25, 26, 31, 35, 47, 49, 51,
52, 53, 54, 58, 59, 60, 61, 62, 66,
69, 75, 76, 78, 79, 81, 82, 91, 92,
96, 100, 108, 113, 116, 117, 131,
134, 135, 137, 140, 143, 144,
145, 146, 151, 152, 154, 155,
160, 161, 162, 163, 164, 165,
166, 168, 174, 176, 177, 178,
179, 188, 191, 194, 195, 201,
204, 206, 207, 209, 235, 238, 254
politico-philosophical, 177, 178
politics, 4, 10, 25, 51, 53, 54, 62, 91,
249, 254
pollution, 65, 114, 118, 121, 208
poor, 3, 5, 10, 21, 22, 68, 73, 77, 94,
101, 102, 114, 121, 122, 124,
145, 173, 175, 176, 177, 190,
192, 194, 195, 209, 210, 215,
217, 223, 234, 238, 240, 243,
248, 252, 253
population, 22, 53, 59, 79, 106, 110,
114, 144, 164, 182, 185, 206,
211, 213, 215, 239
possession, 52, 55, 56, 74, 75, 88,
104, 172
post-industrial, 161
postulated, 98, 106, 225
poverty, 10, 58, 67, 68, 69, 71, 77,
103, 151, 171, 172, 173, 174,
175, 179, 190, 194, 199, 201,
209, 211, 219, 220, 234, 240,
241, 242, 243, 253
power, 18, 24, 31, 43, 45, 52, 53, 59,
62, 63, 64, 68, 69, 76, 79, 82, 84,
103, 104, 105, 109, 117, 119,

136, 139, 143, 152, 154, 155,
157, 163, 164, 165, 169, 173,
177, 182, 183, 186, 189, 199,
207, 209, 217, 219, 220, 232,
237, 240
powerful, 5, 53, 62, 155, 178, 199,
209, 210, 219
powerless, 206, 217
praxis, 201
prefer, 10, 55, 58, 83, 111, 118, 138,
169, 204
preference, 22, 23, 49, 72, 92, 95,
96, 97, 99, 107, 108, 111, 116,
120, 122, 130, 136, 137, 138,
140, 144, 184, 188, 189, 193, 232
preferential, 17, 240
preferred, 99, 137, 166, 199
pretax, 191, 194
pre-trade, 229
prevent, 68, 70, 77, 101, 103, 118,
121, 125, 133, 138, 155, 187,
215, 218, 240, 246, 249, 253
prevention, 18, 114
price, 6, 8, 66, 76, 77, 85, 93, 104,
105, 124, 127, 129, 131, 136,
138, 139, 188, 190, 202, 214,
223, 224, 230, 233, 244, 250
pricing, 78, 93, 130, 202
prime, 124, 165
principal, 22, 157
principle, 3, 7, 11, 23, 27, 41, 44,
45, 46, 48, 49, 50, 51, 52, 54, 61,
62, 64, 67, 68, 69, 71, 74, 82, 87,
88, 92, 93, 99, 103, 105, 115,
123, 124, 130, 135, 138, 152,
153, 157, 158, 164, 167, 170,
173, 177, 178, 179, 191, 201,
204, 209, 210, 211, 217, 219,
220, 236, 241, 248
priori, 121
priority, 96, 177, 235, 240
private, 6, 7, 9, 23, 34, 45, 47, 59,
60, 61, 62, 64, 68, 92, 95, 96, 97,
102, 108, 110, 111, 113, 114,
115, 116, 118, 119, 120, 121,
122, 123, 124, 125, 127, 130,
135, 142, 143, 144, 145, 146,
Subjects 291
165, 166, 167, 173, 176, 177,
178, 180, 184, 210, 218, 219,
229, 235, 236, 237, 238, 245,
246, 251, 252
privatization, 219, 233
privilege, 3, 42, 160, 220
privileged, 176, 177, 242
produce, 3, 5, 27, 29, 30, 33, 50, 57,
65, 67, 69, 77, 78, 82, 83, 94, 95,
98, 116, 121, 129, 157, 169, 173,
194, 200, 201, 202, 203, 205,
206, 208, 211, 217, 225, 226,
227, 228, 230, 244, 249, 253
produced, 26, 28, 32, 96, 101, 121,
127, 128, 200, 202, 203, 208,
218, 223, 225, 228, 230, 253
producer, 9, 66, 77, 111, 129, 131,
159, 172, 202, 208, 211, 224,
228, 230
product, 26, 27, 28, 47, 59, 65, 68,
80, 82, 83, 87, 127, 128, 129,
169, 173, 180, 182, 203, 214,
228, 229, 230
production, 6, 23, 29, 33, 34, 58, 59,
64, 66, 77, 79, 83, 93, 99, 102,
104, 121, 126, 127, 128, 129,
130, 131, 133, 139, 169, 172,
202, 203, 204, 205, 208, 212,
214, 223, 224, 225, 226, 227,
228, 229, 230, 231, 232, 233,
242, 243
production-consumption, 231
productive, 10, 57, 69, 73, 82, 84,
145, 169, 172, 173, 175, 176,
201, 204, 216, 226, 232, 234,
245, 248
productivity, 4, 82, 181, 182, 183,
184, 185, 188, 193, 194, 216, 244
profession, 7, 8, 33, 85, 116, 126,
156, 170, 179, 211, 214
profit, 18, 19, 21, 76, 136, 139, 142,
199, 208, 218, 228, 233, 245
profitable, 173, 202
program, 2, 18, 19, 20, 21, 75, 105,
106, 173, 177, 185, 188, 210, 244
progress, 42, 54, 166, 215
progressive, 18, 19, 21, 195
292 Indices
prohibit, 102, 104, 156, 167
prohibition, 19, 111, 238
prohibitive, 130
project, 26, 108, 137, 140, 159, 161,
238
promote, 2, 3, 10, 48, 50, 52, 54, 55,
62, 63, 64, 78, 79, 80, 81, 82, 83,
84, 85, 86, 99, 103, 105, 108,
109, 140, 142, 143, 155, 156,
159, 161, 163, 164, 166, 168,
170, 179, 180, 195, 200, 204,
211, 214, 215, 217, 220, 234,
245, 248, 253
promotion, 81, 86, 166, 199, 214,
219, 244, 246, 252
property, 2, 3, 6, 9, 45, 46, 55, 56,
60, 63, 66, 69, 71, 72, 73, 74, 75,
78, 86, 88, 101, 102, 103, 109,
118, 130, 138, 167, 171, 172,
203, 210, 214, 230, 232, 233,
235, 236, 249, 250, 252, 253, 254
propertyless, 78, 203
proportion, 53, 109, 137, 160, 169
proportional, 30, 45, 164, 166
proposal, 4, 6, 52, 97, 105, 136, 138,
140, 162, 191, 242
propose, 2, 5, 18, 35, 59, 64, 72, 99,
102, 104, 105, 122, 123, 132,
141, 153, 159, 163, 180, 188,
189, 237, 242, 250, 251
proposition, 3, 8, 32, 85, 98, 105,
157, 169, 224
protect, 5, 31, 39, 44, 62, 73, 75, 78,
85, 101, 154, 177, 202, 211, 214,
215, 254
protection, 18, 25, 34, 63, 69, 71,
77, 87, 102, 104, 105, 152, 155,
171, 172, 176, 187, 210, 215,
219, 252
protective, 64, 152
protest, 60, 140, 206
provide, 2, 3, 6, 7, 10, 11, 24, 34,
39, 49, 51, 59, 64, 66, 67, 71, 73,
75, 83, 84, 86, 92, 97, 108, 112,
115, 124, 136, 137, 138, 139,
140, 141, 142, 144, 145, 146,
170, 171, 174, 176, 181, 183,
185, 187, 188, 189, 190, 194,
199, 201, 208, 217, 223, 238,
248, 251, 252, 254
provided, 7, 34, 47, 66, 83, 96, 111,
114, 117, 119, 122, 123, 127,
139, 141, 142, 143, 144, 154,
186, 187, 195, 213, 217, 238, 251
providers, 211
provides, 25, 33, 35, 46, 51, 66, 71,
75, 77, 79, 82, 83, 96, 97, 103,
104, 106, 109, 111, 127, 129,
136, 143, 145, 166, 169, 170,
171, 204, 205, 206, 208, 246,
249, 252
providing, 1, 3, 5, 7, 8, 10, 22, 32,
53, 64, 68, 82, 94, 100, 104, 107,
109, 111, 115, 121, 133, 139,
141, 144, 167, 181, 186, 188,
189, 210, 215, 242, 245, 248,
249, 250, 251
provision, 8, 34, 64, 65, 66, 79, 83,
84, 88, 95, 100, 101, 102, 104,
108, 109, 111, 113, 115, 124,
125, 127, 135, 136, 137, 138,
139, 140, 141, 142, 143, 144,
145, 155, 159, 186, 189, 191,
206, 235, 237, 238, 242, 249,
250, 251, 253
proviso, 42
public, 2, 4, 5, 6, 7, 8, 9, 10, 17, 18,
23, 24, 30, 34, 35, 50, 59, 60, 61,
64, 65, 66, 69, 77, 83, 84, 88, 92,
93, 94, 95, 96, 97, 100, 101, 102,
104, 105, 106, 107, 108, 109,
110, 111, 113, 114, 115, 116,
117, 118, 119, 120, 121, 122,
123, 124, 125, 126, 127, 128,
129, 130, 133, 134, 135, 136,
137, 138, 139, 140, 141, 142,
143, 144, 145, 146, 151, 154,
155, 156, 159, 162, 164, 166,
168, 171, 172, 181, 185, 186,
187, 188, 189, 190, 191, 192,
193, 194, 200, 202, 208, 211,
213, 214, 216, 217, 235, 237,
238, 239, 240, 241, 242, 243,
246, 249, 250, 251, 252, 253

public-finance, 66
publicly, 155, 242
publicness, 119
punish, 46, 63, 81, 99, 169, 216, 217
punishment, 45, 46
pure, 2, 40, 56, 57, 83, 94, 95, 96,
102, 108, 114, 118, 119, 120,
121, 133, 134, 135, 138, 140,
144, 186, 188, 200, 202, 203,
213, 237, 245
purely, 24, 111, 116, 140, 143, 156,
195, 203, 239, 246
purpose, 35, 43, 44, 47, 53, 54, 55,
65, 67, 79, 84, 85, 87, 91, 92,
111, 126, 127, 155, 159, 166,
169, 179, 180, 213, 224, 242,
251, 253
purposefully, 75
Q redistributive, 152, 191, 215, 220
Quadragesimo, 200
quarrels, 239
quasi, 79, 169, 179
quasi-deterministic, 169
quasi-unrestricted, 179
R 216, 226, 241, 244, 245, 247
rabble, 67, 68, 173, 201
radical, 4, 25, 51, 53, 54, 116, 144,
170, 247
raise, 18, 69, 92, 113, 145, 165, 201,
209, 233, 238, 250
rate, 18, 21, 85, 100, 125, 158, 159,
160, 182, 190, 191, 192, 194,
207, 223, 228, 229, 230, 234, 239
rational, 1, 30, 41, 44, 52, 62, 65,
75, 105, 136, 142, 173, 175, 184,
188, 200, 208, 235
rationalism, 158
rationality, 1, 41, 106, 142, 164,
212, 232
Subjects 293
reason, 29, 30, 31, 54, 67, 71, 78,
87, 97, 102, 105, 106, 113, 118,
133, 144, 152, 156, 157, 161,
164, 165, 192, 194, 201, 202,
203, 204, 207, 213, 236, 249, 253
reasonable, 107, 181, 184, 211, 224,
240, 249, 250
reasoning, 87, 99, 102, 106, 135,
223, 224, 228, 233, 235, 243
recession, 93, 217
recognition, 33, 46, 49, 50, 52, 55,
62, 67, 210
recognize, 46, 50, 52, 73, 74, 107,
139, 170, 176, 209, 211, 219, 252
recognized, 1, 46, 47, 52, 63, 64, 66,
75, 76, 82, 129, 170, 173, 200,
204, 210, 252
redistributing, 93
redistribution, 68, 94, 106, 107, 115,
209, 210, 254
reduction, 185
reductionism, 79
reductionist, 79
re-employed, 244
re-engaged, 245
refer, 17, 21, 32, 33, 39, 53, 69, 82,
106, 122, 126, 127, 128, 131,
133, 152, 186, 200, 213, 214,
reference, 42, 65, 91, 102, 111, 122,
125, 142, 174, 188, 205, 250
reflect, 1, 2, 9, 17, 35, 76, 130, 161,
188
reflected, 18, 44, 46, 85, 127, 151
reflecting, 72, 120, 138, 174, 188,
247
reflection, 1, 2, 3, 21, 24, 40, 46, 55,
62, 67, 71, 81, 87, 92, 96, 120,
135, 138, 141, 153, 155, 161,
180, 209, 213, 249, 252
regulate, 11, 166
regulation, 1, 5, 6, 9, 76, 82, 99,
105, 154, 162, 166, 172, 211,
214, 218, 233, 245, 246, 250, 253
regulator, 168
regulatory, 9, 154, 219, 220
294 Indices
reject, 30, 43, 51, 59, 63, 67, 95,
112, 116, 126, 155, 159, 162,
163, 178, 179, 180, 188, 246,
247, 248, 250
rejection, 30, 31, 52, 60, 118, 127,
130, 163, 247
relate, 55, 67, 86, 122, 132, 211, 233
relation, 9, 21, 39, 40, 41, 42, 43,
45, 46, 48, 55, 56, 57, 58, 62, 73,
85, 86, 87. 99, 125, 131, 156,
158, 160, 167, 217, 224
relationship, 5, 9, 25, 26, 27, 60, 74,
81, 85, 122, 153, 154
relevance, 92, 144, 169, 235
relevant, 5, 17, 39, 75, 96, 117, 129,
133, 143, 233, 243, 249
reliability, 78, 213
reliable, 1, 79, 87, 124
reliance, 213
relied, 248
relies, 2, 67, 159, 190, 206, 208,
212, 217
religion, 9, 10, 11, 31, 32, 49, 63,
176, 199, 204, 210, 211, 219, 248
religious, 1, 4, 9, 11, 74, 105, 151,
153, 155, 156, 175, 176, 177,
178, 180, 190, 201, 223, 235
religiously-based, 176
religiously-bound, 156
repay, 136, 142, 183, 202
report, 156, 215, 223, 239, 250
represent, 29, 30, 94, 124, 137, 157,
162, 163, 164, 181, 206, 209, 226
representation, 5, 30, 52, 62, 164,
166
representative, 28, 31, 54, 98, 103,
104, 162
represented, 32, 131, 132, 163, 186,
211, 217
representing, 31, 66, 163
repress, 69, 161
repression, 210
repressive, 58
request, 85, 110, 154, 176, 214
Rerum Novarum, 200, 209
res nullius, 73
research, 77, 139, 190, 194
resentful, 87
resentment, 3, 10, 68, 87, 165, 173,
253, 254
resist, 5, 159, 177
resistance, 191
resource, 68, 80, 84, 87, 101, 108,
115, 144, 152, 172, 201, 204,
223, 225, 226, 230, 241, 244,
245, 248
respect, 7, 19, 23, 45, 50, 57, 66, 77,
94, 97, 98, 99, 101, 105, 152,
162, 173, 217, 238, 246, 252
respected, 46, 52, 61, 67
respecting, 74, 97, 152, 246
responsibility, 59, 78, 152, 158, 178,
203, 210, 246, 250
responsible, 9, 11, 40, 76, 78, 79,
93, 104, 135, 166, 183, 203, 208,
234, 236, 246
responsive, 26, 248
restrict, 31, 40, 52, 64, 75, 86, 94,
111, 121, 127, 152, 155, 158,
180, 200, 203, 204, 205, 250,
251, 252
restricted, 7, 22, 31, 55, 60, 76, 86,
99, 163, 166, 172, 187, 203, 251
restriction, 31, 40, 67, 73, 77, 79,
100, 105, 106, 151, 158, 180,
248, 249, 251
result, 3, 5, 9, 19, 26, 28, 32, 33, 42,
43, 52, 53, 58, 61, 67, 68, 81, 82,
91, 96, 98, 101, 106, 108, 111,
117, 123, 126, 127, 129, 134,
135, 139, 156, 159, 164, 165,
167, 172, 173, 183, 185, 192,
193, 195, 203, 207, 216, 224,
225, 226, 228, 229, 230, 232,
239, 240, 242, 245, 249
retardant, 5, 151, 159, 160
retirement, 75, 104, 182, 183
reveal, 45, 119, 136, 137, 144, 189
revelation, 130, 137, 138, 144
revenue, 102, 140, 154, 189, 190,
191, 238, 239, 242
revenue-sharing, 154
reward, 33, 55, 59, 78, 87, 169, 170,
242, 247, 250

rich, 21, 53, 68, 73, 77, 101, 102,
151, 201, 234, 253
richer, 75, 195
richness, 151
ride, 102
rider, 115, 126, 130, 133, 139
riders, 84, 133
riding, 115, 130, 179
right, 8, 18, 19, 20, 21, 23, 24, 25,
29, 34, 39, 42, 44, 45, 46, 49, 50,
51, 56, 60, 62, 63, 66, 67, 73, 74,
81, 86, 102, 103, 104, 117, 126,
137, 156, 165, 166, 167, 169,
171, 172, 176, 180, 189, 193,
195, 202, 235, 250, 253
rights, 3, 6, 9, 24, 31, 44, 45, 46, 49,
55, 59, 60, 62, 63, 66, 71, 73, 74,
75, 81, 86, 87, 101, 138, 152,
156, 164, 165, 172, 174, 176,
177, 187, 210, 214, 232, 233,
236, 249, 250, 253, 254
risk, 9, 19, 20, 21, 24, 163, 164, 182,
208, 216, 254
risk-free, 182
risking, 56
rival, 114, 115, 118, 121, 124, 128,
129, 132
rivalness, 7, 114, 118, 124, 132, 186
role, 1, 2, 4, 6, 7, 10, 11, 19, 44, 50,
63, 64, 66, 67, 68, 79, 77, 84, 88,
93, 94, 96, 104, 105, 116, 135,
139, 146, 162, 163, 164, 166,
173, 181, 186, 187, 188, 199,
201, 203, 211, 213, 214, 216,
220, 234, 235, 243, 246, 247,
248, 249, 252
rule, 5, 48, 51, 67, 109, 103, 138,
146, 155, 158, 166, 168, 179,
202, 203, 204, 225, 226, 228,
229, 230, 232, 242, 246, 252, 253
ruling, 159
S
satisfaction, 47, 55, 56, 68, 69, 106,
122, 185, 188, 228, 229, 230,
231, 232, 237
Subjects 295
satisfactory, 30, 68, 116, 151, 170
satisfiable, 170
satisfied, 8, 45, 122, 134, 204, 229
satisfy, 33, 41, 42, 55, 67, 74, 83,
85, 95, 96, 137, 168, 169, 185
save, 23, 163, 182, 183
scale, 126, 127, 128, 129, 131, 133,
175, 190, 225, 244
scarce, 84, 175, 212, 223, 241, 248
scarcity, 80
science, 8, 34, 116, 117, 121, 146,
204, 223, 248, 252
scientific, 98, 118
scientists, 2, 63, 108, 130
sector, 79, 127, 144, 165, 207, 223,
236, 249
secular, 158, 190
secularized, 157
secure, 75, 102, 157, 177, 183
secured, 102, 183
securing, 19, 251
securities, 174
security, 73, 75, 101, 102, 104, 107,
108, 156, 157, 200, 249, 250, 251
self, 1, 7, 21, 26, 27, 28, 34, 35, 40,
43, 45, 46,47, 49, 50, 53, 54, 56,
57, 58, 60, 61, 67, 69, 77, 80, 87,
135, 139, 141, 152, 156, 165,
167, 168, 169, 170, 171, 173,
175, 177, 178, 179, 180, 183,
184, 186, 187, 179, 204, 208,
212, 213, 229, 233, 235, 239,
241, 248, 249, 250
self-conscious, 28, 40, 56, 61, 167,
171
self-consciousness, 19, 40, 56, 167,
171
self-defeating, 173
self-determination, 27, 40, 46, 49,
50
self-determining, 50
self-esteem, 87, 167, 173
self-interest, 1, 21, 34, 35, 49, 53,
61, 77, 80, 135, 139, 141, 156,
168, 169, 170, 171, 175, 178,
179, 180, 183, 184, 186, 187,
296 Indices
189, 204, 208, 212, 213, 229,
235, 239, 241, 248, 249, 250
self-interested, 1, 135, 170, 183,
187, 229, 250
selfish, 4, 43, 87, 115, 136, 162,
170, 238
selfishness, 169, 177, 204
self-justifying, 7
self-organization, 156
self-realization, 45, 47, 67, 177
self-recognition, 69
self-regulating, 208
self-respect, 67, 68, 87
self-responsibility, 21, 248
self-restraint, 58
self-subsistent, 54, 165
self-subsisting, 168
self-understanding, 47
sense, 19, 20, 44, 47, 51, 67, 75, 80,
82, 84, 87, 96, 98, 107, 110, 111,
124, 135, 156, 161, 169, 171,
175, 177, 188, 240, 254
separable, 133
separate, 2, 7, 35, 49, 59, 60, 61, 88,
93, 104, 118, 123, 144, 188, 209,
224
separation, 31, 55, 56, 79, 162
service, 18, 22, 26, 57, 64, 65, 93,
94, 101, 109, 117, 124, 127, 129,
131, 133, 145, 171, 184, 186,
189, 206, 223
serviced, 122
services, 6, 10, 19, 51, 58, 65, 67,
68, 77, 83, 85, 99, 103, 104, 113,
122, 123, 124, 127, 128, 133,
152, 155, 167, 169, 172, 175,
180, 181, 188, 200, 201, 203,
205, 217, 235, 253
share, 18, 19, 20, 21, 57, 52, 69, 72,
75, 83, 115, 129, 161, 167, 169,
170, 185, 188, 189, 216, 220,
225, 234, 253
sign, 21, 187
significance, 30, 52, 53, 56, 66, 81,
82, 83, 164, 171, 176, 240
significant, 102, 104, 142, 218, 224,
244
signified, 118
signifier, 117, 118
signs, 91
simultaneously, 5, 56, 93, 94, 97,
111, 114, 118, 124, 253
slave, 32, 56, 57, 171
slavery, 206
social, 3, 4, 7, 10, 18, 19, 20, 26, 27,
28, 29, 33, 42, 52, 57, 58, 60, 62,
65, 67, 68, 69, 71, 75, 80, 81, 82,
83, 87, 92, 93, 95, 96, 100, 104,
106, 107, 108, 109, 113, 116,
117, 118, 122, 130, 134, 135,
140, 141, 145, 152, 155, 156,
157, 164, 169, 170, 173, 174,
175, 176, 177, 178, 180, 181,
188, 194, 199, 200, 201, 203,
204, 206, 207, 208, 209, 210,
211, 215, 216, 217, 218, 219,
220, 225, 232, 234, 236, 239,
241, 243, 244, 245, 246, 248,
250, 252
socialism, 154, 209
socialist, 19, 78, 200, 203
socialization, 4, 232
social-political, 29
societal, 5, 31, 54, 73, 108, 135,
152, 160, 183, 184, 204, 214,
220, 251
societies, 2, 5, 6, 51, 75, 106, 108,
139, 143, 179, 179, 202, 215,
219, 245, 247, 248
society, 2, 3, 5, 7, 18, 20, 25, 32, 35,
40, 44, 50, 51, 53, 54, 55, 60, 62,
63, 68, 70, 71, 73, 74, 75, 79, 81,
85, 86, 87, 88, 98, 101, 109, 119,
121, 136, 139, 140, 142, 151,
152, 153, 155, 156, 157, 158,
160, 161, 162, 164, 165, 166,
167, 168, 169, 170, 173, 174,
175, 177, 178, 179, 180, 181,
182, 183, 184, 185, 186, 187,
190, 199, 200, 201, 202, 204,
207, 208, 209, 210, 211, 212,
218, 220, 225, 229, 230, 232,
236, 237, 240, 247, 248, 249,
250, 251, 254

society-at-large, 204
socio-economic, 4, 5, 92, 96, 100,
101, 116, 135, 140, 141, 144,
145, 158, 259
socio-economics, 92, 96, 100, 101,
116, 140, 141, 144, 145
sociological, 56, 206
sociologists, 107
sociology, 93
socio-political, 1, 2, 29, 113, 140,
254
solidarity, 176, 177, 217, 241
solipsistic, 170
solution, 5, 6, 7, 18, 20, 21, 27, 31,
35, 41, 43, 46, 54, 56, 59, 62, 64,
68, 81, 84, 94, 113, 115, 116,
128, 134, 135, 136, 137, 140,
141, 143, 144, 141, 151, 155,
171, 172, 200, 201, 228, 230,
247, 254
source, 54, 65, 86, 179
sovereign, 3, 102, 120, 202
sovereignty, 8, 23, 66, 92, 94, 98,
99, 108, 122, 158, 179, 238
sphere, 2, 4, 28, 30, 54, 55, 60, 74,
163, 164, 165, 176, 177, 236
spillover, 126, 127, 130, 131
spirit, 26, 32, 87, 101, 104, 180,
205, 211, 220, 235
stability, 85, 156, 160, 203, 208
stabilization, 93, 106
stable, 78, 104, 171, 235, 236
stage, 188
standard, 1, 65, 92, 156, 157, 172,
175, 186, 190, 224, 234
starvation, 84, 86, 169, 206, 246,
253
starve, 3
state, 3, 21, 23, 24, 31, 32, 40, 47,
48, 49, 50, 52, 53, 54, 56, 59, 60,
61, 62, 63, 64, 65, 66, 67, 68, 69,
71, 72, 76, 79, 87, 88, 92, 100,
101, 102, 103, 106, 110, 111,
124, 140, 152, 153, 154, 155,
157, 158, 160, 161, 162, 163,
164, 165, 166, 167, 168, 170,
171, 172, 173, 178, 179, 187,
Subjects 297
199, 207, 209, 210, 211, 219,
220, 226, 233, 235, 236, 237,
238, 246, 252, 253
state-of-affairs, 110
states, 1, 47, 52, 54, 68, 79, 80, 95,
143, 152, 154, 160, 164, 174,
175, 176, 177, 190, 239
stewardship, 73, 74, 177
stocks, 104
stoicism, 32
strategic, 100, 109, 215, 252
strategy, 79, 109, 118, 126, 130,
132, 133, 136, 141, 142, 143,
145, 187, 189, 217, 232, 241
strike, 67, 152, 175
structural, 2, 5, 30, 35, 49, 59, 151,
163, 165, 254
structure, 4, 11, 31, 44, 61, 144, 161,
164, 213
structuring, 2, 235
subgroup, 21, 33, 181, 207
subject, 3, 9, 17, 21, 26, 28, 39, 45,
46, 48, 51, 55, 56, 82, 181, 156,
164, 169, 200, 204, 211, 230, 232
subjected, 77, 123, 253
subjective, 43, 46, 47, 56, 61, 87,
102, 164, 168
subjectivity, 45, 46, 48, 49, 50, 51,
52, 53, 54, 67, 204, 209, 211, 220
sublimate, 42, 69, 78
sublimation, 171
submarginal, 157
suboptimally, 127
subsidiarity, 157, 177, 178, 236
subsidiary, 79, 80, 236
subsidies, 68, 75, 76, 77, 79, 94,
104, 106, 108, 111, 122, 183,
184, 189, 190, 191, 192, 193,
194, 195, 214, 239, 252
subsidize, 107, 109, 115, 124, 125,
182, 183, 188, 189, 191, 192,
193, 194, 213, 215, 238, 249,
252, 253
subsistence, 56
substitute, 180, 229, 236
substituted, 154, 228
substitution, 145, 228, 229, 230
298 Indices
subtract, 132, 188
subtractable, 129
subtraction, 110, 135
suffer, 143, 152, 169, 207, 208
suffering, 200, 219
sufficient, 18, 19, 20, 21, 73, 74, 96,
121, 139, 140, 142, 175, 212,
224, 231, 240
suffrage, 25, 30, 52, 53, 164
sumptuary, 94
super-inflation, 82
supplement, supplementary, 49, 189,
194, 236
support, 2, 5, 9, 11, 30, 54, 55, 56,
69, 71, 76, 77, 87, 106, 113, 117,
135, 151, 165, 173, 181, 190,
191, 193, 194, 195, 210, 214,
219, 236, 240, 251, 253
supporter, 201
synthesis, 44, 57, 59, 61
synthesize, 43, 57
system, 1, 2, 3, 4, 5, 10, 11, 18, 23,
33, 34, 39, 44, 48, 49, 51, 55, 58,
61, 63, 64, 67, 68, 71, 72, 76, 79,
80, 81, 82, 86, 87, 88, 93, 96,
101, 104, 110, 120, 121, 124,
137, 138, 153, 155, 161, 162,
163, 165, 166, 168, 169, 171,
172, 174, 179, 183, 187, 190,
194, 195, 199, 200, 201, 202,
203, 204, 205, 206, 207, 212,
213, 214, 218, 219, 233, 236,
245, 247, 248, 252, 253, 254
systematic, 19, 21, 22, 35, 39, 48,
68, 100, 108, 167, 173, 176, 178,
220
system-generated, 172, 207
T 119, 120, 122, 135, 136, 138,
tagged, 123
tag, 114, 123, 124, 125
tariffs, 104, 159
task, 5, 6, 10, 11, 29, 58, 60, 61, 69,
76, 77, 79, 83, 84, 91, 93, 95,
101, 102, 104, 105, 118, 152,
153, 154, 156, 157, 162, 171,
172, 175, 206, 209, 210, 211,
213, 214, 218, 219, 236, 249,
250, 252, 254
tax, 5, 24, 93, 109, 115, 136, 137,
138, 140, 191, 192, 193, 194,
195, 218, 237
taxable, 5, 191, 192, 193
taxation, 18, 19, 23, 64, 66, 84, 86,
102, 109, 112, 119, 122, 134,
136, 137, 138, 145, 173, 181,
189, 195, 237, 238, 251
taxed, 87, 242
taxes, 3, 18, 21, 64, 93, 94, 97, 102,
104, 109, 113, 137, 138, 145,
170, 192, 195, 232, 239, 242, 250
taxonomic, 123
taxpayer, 3, 77, 191
technical, 2, 4, 6, 7, 9, 11, 17, 19,
20, 21, 23, 24, 65, 78, 93, 97,
101, 108, 114, 117, 118, 134,
136, 145, 169, 179, 202, 210, 235
technique, 68, 107, 109, 138, 152,
157, 216
technological, 248
technology, 118, 144, 159, 226
terminology, 3, 33, 47, 120, 122,
171
terror, 4, 25, 27, 53, 54, 81, 82, 205
theft, 45, 109, 112, 152, 206
theocentric, 26
theologia, 1
theologians, 2
theological, 1
theology, 1
theorem, 134, 138, 140, 180
theoretical, 4, 7, 20, 31, 76, 83, 88,
96, 98, 103, 104, 106, 111, 114,
151, 188, 213, 250, 253
theoreticians, 30, 200
theorists, 19, 233
theory, 8, 10, 23, 24, 29, 30, 31, 32,
33, 64, 65, 66, 68, 69, 72, 75, 79,
82, 85, 88, 91, 92, 94, 95, 96, 97,
98, 100, 103, 107, 108, 110, 120,
 Subjects 299

121, 130, 134, 137, 138, 152, 161, 183, 185, 189, 200, 216,
160, 163, 166, 172, 173, 176, 231, 243, 247
183, 186, 187, 188, 206, 210, truly, 140
212, 213, 215, 216, 217, 219, trust, 55, 60, 81, 103, 208, 211, 216,
223, 225, 230, 231, 232, 243, 217, 218, 219, 220, 249, 252
246, 247, 248, 263 truth, truthfully, 42, 43, 45, 49, 50,
thesis, 9, 43, 44, 48, 55, 56, 57, 78, 56, 57, 82, 105, 107, 119, 121,
79, 92, 96, 105, 110, 117, 146, 124, 204
157, 168, 243, 247 two-parent, 190, 194
threat, 5, 29, 64, 67, 82, 83, 84, 86, two-step, 137, 142
87, 162, 169, 171, 190, 203, 206,
207, 208
threaten, 57, 50, 60, 75, 86, 159, U
163, 172, 190, 215
title, 11, 25, 53, 65, 107, 122, 225,
ultimate, 22, 32, 48, 54, 79, 83, 86,
252
92, 107, 163, 171, 224
titled, 53
unable, 35, 85, 158, 173, 186, 187
toll, 93, 114, 134
unacceptable, 3, 5, 6, 8, 25, 30, 66,
toll-booths, 134
151, 175, 178, 233, 253
totalitarian, 52
unalloyed, 56
trade, 10, 60, 77, 80, 104, 164, 199,
unambiguous, 123, 231
229, 230
unavoidable, 27, 53, 54, 59, 81, 91,
traders, 156
115, 116, 139, 140, 157, 199,
tradition, 1, 11, 39, 42, 58, 73, 74,
233, 236, 238
76, 93, 108, 155, 169, 176, 206,
uncertainty, 173
212, 213, 223, 234, 238
unconditional, 31, 37, 87, 115, 164,
traditional, 26, 76, 92, 108, 156,
246, 259
212, 213, 235
undermining, 81
transacted, 217
underpayment, 141
transaction, 8, 9, 10, 103, 164, 166,
underprivileged, 87
182, 233, 234, 248, 254
under-provision, underprovided, 64,
transcend, 31, 32, 46, 49, 55, 56, 59,
84, 136, 213, 251
170, 171, 246
undesirable, 4, 48, 65, 79, 117, 139,
transcendent, 46, 50, 175, 210
195, 224
transcendental, 98
un-economic, 159
transfer, 93, 94, 185, 193
unemployed, 10, 173, 199, 226, 239,
transform, 2, 4, 26, 33, 58, 59, 62,
252
66, 88, 144, 153, 170, 174, 191,
unemployment, 18, 19, 21, 58, 75,
210, 219
84, 85, 103, 107, 173, 175, 190,
transformation, 59, 156, 158, 161,
200, 207, 208, 217, 224, 234,
215, 218, 230
239, 244
transition, 10, 11, 42, 85, 88, 199,
unenforceability, 6, 126, 128, 130,
219, 243, 244
133, 134, 136
transparency, 214
unenforceable, 6, 127
true, 1, 4, 19, 41, 43, 58, 66, 76, 93,
unequal, 60, 62, 155, 242
98, 111, 117, 136, 137, 138, 143,
unfairness, unfair, 80, 87
300 Indices
union, 10, 33, 47, 56, 84, 103, 142,
143, 157, 159, 175, 176, 187,
206, 210, 219, 251
unionization, unionized, 103 206
unique, 7, 63, 113, 165
unit, 4, 31, 121, 129, 130, 132, 133,
224, 229
unity, 32, 47, 61, 162, 163, 165,
167, 168, 176, 203
universal, 22, 25, 28, 29, 30, 31, 32,
33, 34, 35, 41, 43, 44, 45, 50, 51,
52, 53, 60, 61, 62, 66, 74, 81, 82,
145, 157, 164, 166
universalism, 22
universality, 22, 32, 33, 34, 40, 203
unjust, 2, 5, 11, 22, 140, 157, 174,
178, 190, 234
unjustifiable, 87, 195
unjustified, 87, 184
used, 2, 7, 8, 31, 33, 34, 49, 55, 56,
59, 62, 63, 66, 79, 82, 88, 91, 99,
101, 102, 107, 113, 115, 116,
117, 118, 125, 126, 128, 129,
130, 131, 133, 134, 135, 136,
137, 138, 141, 142, 143, 144,
152, 154, 159, 153, 176, 183,
191, 193, 194, 199, 226, 237,
243, 244, 249, 253
useful, 3, 11, 26, 27, 55, 63, 65, 68,
73, 74, 82, 104, 115, 120, 155,
169, 187, 207, 244
usefulness, 74, 102, 107, 132, 143,
244
useless, 104, 135
util, 229, 232
utilitarianism, utilitarian, 4, 73, 74,
158, 172
utility, 6, 8, 27, 65, 74, 100, 102,
107, 134, 145, 166, 216, 229,
231, 232, 237, 241, 244, 251
utility-possibility, 229, 231
utopianism, utopian, 3, 4, 19, 25, 35,
53
V
valid, 3, 19, 22, 35, 79, 82, 96, 114,
135, 143, 145, 156, 179, 207
validity, 26, 74, 80, 81, 91, 99, 107,
108, 115, 116, 117, 144, 145,
146, 224, 226
value, 2, 24, 50, 51, 58, 77, 78, 79,
80, 83, 93, 97, 101, 102, 103,
105, 108, 109, 113, 114, 121,
138, 140, 145, 158, 169, 170,
171, 174, 206, 224, 232, 250, 251
valued, 52, 164
value-free, 24, 108
values, 2, 9, 31, 52, 62, 65, 73, 106,
108, 145, 179, 192, 211, 213, 214
vice, 69, 178, 207, 228
vicissitude, 33, 159
violate, 3, 23, 50, 68, 72, 74, 81,88,
99, 103, 108, 109, 120, 138, 168,
173, 175, 181, 187, 202, 233,
242, 243, 249, 250, 251
violation, 3, 66, 74, 87, 88, 95, 102,
103, 123, 138, 173, 202, 250
violence, 152, 202
virtues, 21, 33, 52, 69, 78, 79, 110,
164, 204, 216, 248
vision, 23, 25, 27, 45, 60, 68, 175,
270, 234
voluntarism, voluntarist, 117, 246
voluntary, 23, 64, 66, 69, 83, 133,
138, 141, 142, 143, 144, 152,
187, 242
volunteer, 145
vote, 8, 30, 52, 53, 110, 119, 138,
140, 143, 144, 163, 164, 185,
190, 193, 290
vouchers, 108
W
wage, 18, 19, 20, 21, 103, 173, 175,
184, 190, 194, 200, 224, 232,
240, 241, 242

war, 64, 104, 135, 156, 160, 163,
170
watchman, 152
wealth, wealthy, 5, 18, 21, 60, 68,
69, 152, 173, 175, 177, 201, 217,
234, 242
wealthier, 192
wealth-sharing, 69
welfare, 3, 20, 34, 62, 71, 87, 88,
100, 106, 134, 166, 173, 212,
215, 225, 231, 232, 235, 236,
239, 252, 253
well-being, 19, 175, 180, 182, 207,
211, 215
well-functioning, 244
well-off, 243
well-regulated, 102
well-to-do, 238
whole, 44, 45, 47, 52, 58, 61, 66, 74,
77, 83, 84, 95, 106, 107, 108,
114, 120, 145, 155, 157, 160,
162, 175, 177, 180, 181, 185,
194, 207, 212, 217, 240, 249,
250, 251
willing, 6, 8, 33, 45, 48, 51, 54, 54,
75, 82, 83, 84, 124, 136, 141,
143, 157, 158, 170, 178, 188,
202, 210, 211, 237, 239, 240, 242
willingness, 27, 33, 125, 136, 137,
140, 143, 170, 185, 188, 189,
216, 217, 237, 240, 253
will, 1, 3, 4, 5, 6, 7, 8, 10, 11, 17,
19, 20, 21, 22, 23, 24, 25, 26, 27,
28, 29, 30, 32, 34, 35, 40, 41, 42,
43, 44, 45, 46, 47, 48, 49, 50, 52,
53, 55, 56, 57, 58, 60, 62, 63, 64,
66, 69, 72, 74, 75, 77, 78, 79, 80,
82, 83, 84, 87, 92, 99, 100, 103,
105, 106, 107, 110, 111, 114,
115, 116, 117, 119, 125, 126,
Subjects 301
135, 136, 137, 140, 141, 142,
143, 144, 145, 153, 154, 155,
156, 157, 158, 159, 160, 161,
163, 164, 167, 168, 169, 173,
179, 181, 182, 183, 184, 185,
186, 187, 188, 189, 190, 191,
192, 194, 199, 200, 201, 203,
204, 205, 207, 208, 209, 210,
212, 219, 220, 223, 224, 225,
226, 228, 230, 232, 236, 237,
238, 240, 241, 242, 244, 245,
247, 248, 253, 254
wisdom, wise, 1, 9, 73, 121, 211,
215, 233, 250
wish, 8, 24, 41, 51, 62, 72, 80, 88,
94, 95, 96, 97, 98, 99, 100, 101,
102, 103, 105, 106, 108, 109,
111, 115, 123, 170, 180, 184,
191, 203, 205, 210, 211, 212, 238
work, 1, 2, 4, 19, 21, 32, 33, 47, 53,
56, 57, 58, 59, 61, 64, 67, 68, 69,
74, 91, 93, 96, 103, 104, 108,
120, 121, 123, 130, 135, 136,
142, 143, 144, 145, 151, 152,
157, 159, 165, 167, 169, 171,
172, 173, 176, 177, 178, 179,
182, 183, 187, 190, 194, 200,
202, 203, 206, 209, 210, 214,
216, 218, 219, 220, 223, 225,
228, 234, 239, 240, 243, 246,
248, 249, 251, 252, 255
workable, 115, 252
worker, 57,139, 142, 143, 156, 162,
190, 191, 194, 203, 211, 217,
224, 227, 228, 232, 234, 244, 246
workman, 57, 240
workplace, 142, 218
worthiness, worth, 2, 49, 109, 137,
143, 168, 175, 185, 189, 191,
192, 232, 252
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